The Bank of England said British banks may be able to borrow an initial 61 billion pounds ($98 billion) under its latest lending plan to boost credit to companies and households.
U.K. lenders had 1.21 trillion pounds of loans outstanding to non-financial companies and individuals as of June 30, according to data published by the central bank in London today.
Under the Funding for Lending Scheme, a bank can initially borrow treasury bills valued at 5 percent of their outstanding loans, plus any expansion of its lending during a reference period from that date to the end of 2013.
The program, designed with the U.K. Treasury, is aimed at reducing the cost of borrowing and is the latest in a series of measures introduced to help the economy fend off contagion from the turmoil in the euro area. Banks have been able to borrow treasury bills from the Bank of England since Aug. 1, and the central bank had said its new lending plan could boost credit to companies and households by at least 80 billion pounds.
Royal Bank of Scotland Group Plc’s existing stock of loans totaled 215 billion pounds at June 30, Barclays Plc 181 billion pounds and Lloyds Banking Group Plc 443 billion pounds, the Bank of England said. HSBC Holdings Plc isn’t taking part in the program, saying it will continue to fund its lending growth through its own resources.
Other banks that have said they will participate in the program include Nationwide Building Society, Santander U.K. Plc and Virgin Money, the central bank said.
RBS will be able to borrow as much as to 10.7 billion pounds, Barclays 9.1 billion pounds, and Lloyds 22.2 billion pounds, while Nationwide can draw 7.6 billion pounds and Santander UK 9.5 billion pounds. The Bank of England said 13 lenders will take part. The smallest will be Kleinwort Benson, which can borrow about 550,000 pounds.
Banks will pay a minimum fee of 0.25 percent of the amount borrowed provided they maintain lending levels or increase them. Banks will have 18 months to use the facility and then as long as four years to repay.
The fee will climb by 0.25 percent for each 1 percentage point drop in lending, rising to a maximum 1.5 percent if their lending contracts by 5 percentage points or more. The Bank of England has said this creates an additional incentive to boost lending.
The central bank said collateral currently accepted in its discount window facility will also be accepted for the FLS. It will also accept pools of loans to the real economy.
The central bank will publish the amount banks draw down from the FLS and net lending figures on a quarterly basis.