However, the report also suggested that lending to small businesses was still sluggish, adding that some business lenders still appeared to be âtightening termsâ.
The FLS is designed to boost lending to home-buyers and small businesses by providing banks with cheap, state-backed funding. It enables banks and building societies to borrow the equivalent of up to 5% of their current lending total, with the option to increase this if they meet certain conditions.
Banks and building societies that increase lending to UK households and businesses are able to borrow more in the FLS, and do so at lower cost than those that scale back lending.
The introduction of the FLS occurred against the backdrop of a euro-area debt crisis which revealed severe vulnerabilities in the European banking system and which led to a marked deterioration in the outlook for the UK economy.
Eligible banks and building societies were encouraged to ensure they build up sufficient eligible collateral pre-positioned with the Bank to support their use of the FLS scheme. For every pound of additional real economy lending an institution advances, an additional pound of access to the scheme will be permitted for that institution. There is no upper limit on the size of either individual or aggregate borrowing under the scheme. The price of each institutionâs borrowing in the FLS depends on its volume of lending to the real economy during any fiscal period. For banks or building societies maintaining or expanding their lending over that period, the fee is 0.25% pa on the amount borrowed.
The amount borrowed from the Bank of England, and the amount lent to households and firms by each participating institution, is made public by the Bank of England on a quarterly basis. The Bank of England is not indemnified for the operation of the FLS, and the FLS is overseen by a joint Bank / HMT Oversight Board, which meets on a quarterly basis.
The FLS scheme is due to end in January 2014, although some experts now believe that it could be extended as part of Government plans to increase the number of loans made to small and medium-sized businesses. Chancellor George Osborne could expand the ÂŁ80bn scheme before a visit to Britain by the International Monetary Fund (IMF) in May. There is already pressure from the IMF on the Chancellor to rethink the timescale of his austerity measures. An extension of the FLS Scheme to January 2015 could be made with a condition that more loans are made to SMEs.
