Tuesday 25 September 2012 8:55 pm

What is Funding for Lending?

Q What is the Funding for Lending scheme? A It is a government scheme to offer banks cheap loans with incentives to lend more to households and businesses. Banks can borrow funds worth up to five per cent of their loan book as of 30 June, at 0.25 per cent. If they increase lending, they get offered more funding; if they lower lending, the interest rate goes up. The loans last for up to four years, and the scheme is open for 18 months. Q Why was it launched? A It opened on 1 August as politicians and officials feared the funding markets would seize up again, hitting banks hard and cutting the supply of credit. This is a way to guarantee banks cheap funds. Q Has it worked? A It is early days, but several banks have lowered rates since it launched. Lloyds has taken £1bn from the scheme. Q Is every bank taking part? A No. The most high-profile abstainer is HSBC, which says it is already increasing lending to small firms and that it has such a big depositor base it needs no aid.