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The Funding for Lending Scheme (FLS) has contributed to a substantial fall in bank funding costs since its launch in 2012. That has fed through to improvements in credit conditions for households and businesses. Reflecting these improvements, the scope of the scheme has been narrowed several times since it was launched. Most recently, the Scheme was re-focused towards lending to SMEs.
The extension announced will continue the tapering of the scheme, while ensuring a continuation of the temporary support provided so as not to risk hindering the recovery in SME credit conditions. This extension will also complement other initiatives undertaken by the Treasury and the Bank of England that tackle longer term structural constraints on SME lending. These include:
The drawdown window for the FLS extension will remain open until 31 January 2018. Current participants in the FLS extension will remain part of the scheme and will continue to be able to draw against existing unused borrowing allowances beyond 31 January 2016, but will not generate additional allowances from lending beyond the end of 2015. From 1 February 2016, participants will initially retain full access to draw against their borrowing allowance. Allowances will reduce by 25% after six months, and by the same amount every six months thereafter until the end of January 2018 when the scheme will close.
There will be a separate part of the scheme that allows only new banks to generate and draw against new allowances over the two-year extension. This is to ensure that new banks, which may not otherwise have any borrowing allowances under this extension given the lack of a prior lending history, are not put at a disadvantage relative to other banks that have access to the scheme.