Shares in Britain’s largest banks were among the biggest risers this morning as the market gave a cautious thumbs-up to the Government’s plans to provide £140 billion of emergency funding to support the economy.
In his annual Mansion House speech, the Chancellor George Osborne said the Bank of England would provide an emergency stimulus package intended to kick-start mortgage and small business lending, as fears grow about the impact the worsening Eurozone crisis is having on economic growth.
The Bank of England’s new External Collateral Term Repo (ECTR) will see the central bank pump a minimum of £5 billion every month into the banks in the form of six-month loans. Unlike previous bank funding schemes, the ECTR will allow lenders to offer a far wider pool of collateral against the loans, in a step intended to improve their attractiveness.
Concurrently, the Bank of England and the Treasury will also launch a “Funding for Lending” programme that will see the authorities provide cheap loans to the banks in return for them making more new lending available to small businesses. The scheme is an expansion of the Government’s existing Credit Easing programme and is designed to push banks to lend more to struggling businesses that are finding it hard to secure credit from lenders.
Mark Hoban, the Financial Secretary to the Treasury, said on BBC Radio 4’s Today programme (Friday June 15) that if there were a five percent take up of the scheme, then loans would total £80 billion. He said the message for businesses from the emergency funding scheme was: “Finance is available at a price they can afford.”
Sir Mervyn King, the Bank of England Governor, said in his Mansion House speech that the “industrialised world have thrown everything bar the kitchen sink” at the global economic meltdown but that even “bolder action” was now required.
The Chancellor said he was no longer prepared to stand on the sidelines: “We are not powerless in the face of the Eurozone debt storm,” he said. “We are rolling up our sleeves and doing everything possible to protect British families and firms.”