THE NEW funding for lending scheme (FLS) has received only a cautious welcome from economists, analysts and banks, with many worrying that there is insufficient demand for credit for the plan to make much of a difference to the economy.
The scheme will see the Bank of England take illiquid assets off banks in exchange for government bills, allowing them to increase lending.
This cheap source of funding will be a “huge help” to families and firms, said chancellor George Osborne.
But analysts are sceptical.
“The success of the scheme is likely to hinge largely on whether there is sufficient demand for additional lending – and the position here is far from clear,” said RBS’s Ross Walker.
“Given that large UK corporations with ample holdings of cash continue to hold back from significant capex, there are grounds for caution.”
The scheme was dealt a major blow almost immediately, with HSBC refusing to take the support, instead aiming to fund through deposits.
“Use of previous state-sponsored schemes have been routinely encouraged then thrown back in the face of participating institutions as demonstrating the tax-payer subsidy they benefit from – that is then used as an excuse to raise taxes and regulatory hurdles,” said Nomura’s Philip Rush.
“RBS and Lloyds will be strongly encouraged to use it though, so we do expect the FLS to get used.”
“We just do not expect it to get the widespread usage that the government and BoE are hoping for, nor do we expect it to have much of an impact on net lending.”