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News - 24 September 2012

The Funding for Lending Scheme (FLS).

The Bank of England, which runs the scheme, said 13 banks and building societies had signed up so far, who between them represent 73% of the market and £1.2 trillion worth of lending.(see News item 01/08/12)

HSBC is the only one of the top six not taking part, as it says it does not need additional funding.

The institutions can borrow the equivalent of up to 5% of their loan books immediately, and more if they meet certain conditions over the next year. Based on their current lending levels, the 13 institutions could initially draw on up to £60bn of Bank of England funding.

The funding has been available since last month, but this is the first time the Bank has revealed the names of the institutions taking part.

The banks and building societies that have signed up are: Aldermore, Barclays, Hinckley & Rugby Building Society, Ipswich Building Society, Kleinwort Benson, Leeds Building Society, Lloyds Banking Group, Monmouthshire Building Society, Nationwide Building Society, Principality Building Society, RBS Group, Santander and Virgin Money.

The continuing financial crisis and fears about the fate of the eurozone have hit banks' access to funding on the open markets, making it more difficult and more expensive to borrow.
Banks that rely on the markets, rather than savers' deposits, for the money they lend out have been passing on these higher costs to business and mortgage customers. The terms and conditions have also been getting stricter.

How Funding for Lending will work

  • Banks and building societies can initially borrow Treasury bills up to 5% of the amount they currently lend
  • They will be charged just 0.25% interest, much lower than the going rate
  • They can borrow more than 5%, only if they increase their overall lending
  • If they decrease lending, the interest rate will increase up to 1.5%
  • The banks use the Treasury bills as backing to buy money cheaply on the financial markets.
  • It is this money that they then lend out
  • The Bank of England and taxpayers will be protected from any losses made on the loans agreed by the banks with homes or firms, because the banks will have to provide collateral to the Bank of England of a higher value than the loans
  • Lending levels to be monitored by the Bank of England

Lavinia Newman, Founder of ABDS comments: “RBS and Lloyds have indicated that thanks to the scheme around £1bn each of extra lending to businesses has already been generated and there will be more to come. But the jury will remain out on the scheme until the actual amounts drawn down from the Bank are published in December.”

If you need any help and advice for your business on Tax, VAT or the implications of Government Funding initiatives, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

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