An infographic to make it easier to understand how the Funding for Lending Scheme works
The Bank of England and HM Treasury launched the Funding for Lending Scheme (FLS) on 13 July 2012. It is designed to boost lending to households and businesses. It works by allowing banks and building societies to borrow from the Bank of England for up to 4 years. As security against that lending, banks will provide assets, such as business or mortgage loans, to the Bank of England. Banks will be able to borrow from 1 August 2012 until 31 January 2015.
Banks will have strong incentives to boost lending, by lowering interest rates and increasing the availability of business loans and mortgages. The more that they lend, the more they can borrow from the Bank of England. Banks that are increasing their lending will pay the lowest fee on their borrowing while those that reduce their lending they will pay a higher fee. The Bank of England will continue to publish data on the usage of the FLS along with lending data from the participants on a quarterly basis.
On 24 April 2013 the Bank of England and HM Treasury announced extensions to the FLS. The Scheme is extended to allow drawings until the end of January 2015. This aims to boost the impact of the FLS, particularly for small and medium sized enterprises as the incentives in the Scheme will be heavily skewed towards SMEs. The Scheme expansion support lending to the real economy more widely by including non-bank credit providers who in turn lend to the real economy.