Bank of England Markets Director Paul Fisher said HSBC Holdings Plc (HSBA)’s rejection of the central bank’s Funding for Lending Scheme may not be repeated by other banks that don’t have access to as much liquidity.
“HSBC are a special case,” Fisher said yesterday in a Bloomberg Television interview withLinda Yueh in London. “They are awash with retail deposits and other things they don’t know what to do with.” Britain’s other big banks are “all very well disposed to the scheme.”
HSBC said it won’t participate in the FLS after the central bank announced details of the plan in London. The program, designed with the U.K. Treasury, is the latest in a series of measures introduced to boost lending, help the economy fend off contagion from turmoil in the euro area and recover from a recession.
“The main objective is to support the economy and we try to do that by unblocking the channel of bank lending,” Fisher said. “We’re going to do that by making bank funding costs cheaper so that banks can pass on cheaper loans to businesses and households.”
Banks will be able to borrow treasury bills from the central bank from Aug. 1 to fund lending. They will have 18 months to use the facility and then up to four years to repay.
“The 18 months is designed to be long enough to let them get lending out of the door, but also short enough to make them want to do it and not delay,” he said. “If we’d said two or three years, they might not have done anything for 18 months and we need the lending growth now.”
Fisher said that he currently doesn’t anticipate the central bank would want to extend the alloted timespan.
“Of course you never say never, and if something else happens we’d have to think about other policies, but I wouldn’t anticipate that we would change this scheme given that we set out precise details,” he said.
While quantitative easing has done a “very good job,” officials decided that other measures were needed, Fisher said. The bank expanded its target for bond purchases by 50 billion pounds ($78 billion) to 375 billion pounds this month, restarting the program after halting it in May.
“QE was really designed to go round the banks,” Fisher said. “But by now, the banks should have fixed themselves.”
He also said that he has been a “strong supporter” of QE because of the risks to inflation. While consumer-price growth has been above the central bank’s 2 percent goal for more than two years, it is forecast to drop below that level in mid-2013.
“If we can’t get growth back into the economy, the biggest threat to us is inflation falling below the target,” Fisher said. “We’d all like to get back to more normal levels of interest rates in the medium term, so that would be no bad thing. But the cure for most of our problems at the moment is to get more growth back into the economy and then we can rely on getting inflation back to target on a sustainable footing.”
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