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Breaking News: Fls Extended For Two More Years

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Letter from Carney to Gidiot

The Funding for Lending Scheme (FLS) was launched jointly by the Bank and HM Treasury in July 2012, against a backdrop of elevated funding costs for banks and building societies, and an impaired flow of credit to the real economy. Since then, the FLS has contributed to a substantial fall in these funding costs, which in turn have fed through to improvements in credit conditions for households and businesses.

The scope of this temporary scheme has been narrowed several times since it was launched, reflecting the improvements we have seen in credit conditions over this period. In November 2013, incentives to increase lending to households were removed, following significant improvements in their credit conditions. And in November 2014, the Scheme was further concentrated on lending to Small and Medium Sized Enterprises (SMEs), for whom improvements were taking longer to feed through, relative to larger corporations. It is now appropriate to taper further and ultimately wind down the Scheme as the need for it diminishes.

Since this time last year, credit conditions for SMEs have continued to improve. Sources indicate that both the cost and availability of credit for SMEs is better than a year ago, and net lending to SMEs has increased. Nevertheless, conditions still remain relatively tight. So it is important that the support provided by the FLS is withdrawn gradually as the recovery in credit conditions for SMEs continues,. This will also allow other initiatives aimed at supporting SME lending (including the British Business Bank, and Bank of England initiatives relating to the availability of credit information) further time to take hold.

As you and I have discussed, the extension announced today will provide participants with additional time and flexibility to draw unused allowances earned through positive net lending to the real economy. Accordingly, Bank and HM Treasury officials have finalised plans to extend the scheme for two years. Participants will have a further six months to draw any unused allowances, after which time the amount available to draw will reduce every six months over the two year period, tapering the scheme to a natural close at end January 2018.

30 November 2015

In addition, we have also discussed the need to ensure that newly authorised banks are able to

access the Scheme, thereby promoting increased competition from newer lenders. As these

banks may not have a prior lending history, they will be able to earn a borrowing allowance

based on their net lending over 2016 and 2017, with each £1 lent to SMEs eaming an allowance

of £5 in the Scheme. This part of the FLS will be small in scale, but will ensure that newer banks

are not placed at a disadvantage relative to other participants.

I have consulted both the Monetary Policy Committee (MPC) and the Financial Policy

Committee (FPC) about these amendments to the FLS. The MPC has judged that there will be

no material impact on the stance of monetary policy, and the Financial Policy Committee

welcomes these changes.

I would be grateful if you would confirm that you are content with the proposed changes, and

that the Scheme remains within the remit of the Bank.

With best wishes

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It's to be tapered until Jan 2018

Market Notice

30 November 2015

Further Amendment to the Funding for Lending Scheme Extension

1. The Funding for Lending Scheme (FLS) was launched on 13 July 2012 and was designed to incentivise banks and building societies to boost their lending to the UK real economy. An extension to the FLS was announced on 24 April 2013, and amended on 28 November 2013. A further amendment on 2 December 2014 extended the drawdown window to 29 January 2016 and re-focussed the incentives of the scheme towards lending to Small and Medium-Sized Enterprises (SMEs). This Market Notice sets out details of further changes to the terms of the FLS Extension.

2. Other than as amended by this Market Notice, the terms of the FLS remain unchanged. The Operating Procedures will be updated to reflect this Market Notice in due course. Further information on the FLS, including all the relevant documentation and a Consolidated Market Notice detailing the operation of the FLS Extension, can be found on the Bank’s website.1

Participation

3. Current Participants in the FLS Extension will remain part of the Scheme. Eligible institutions not currently signed up to the FLS Extension will continue to be able to join the Scheme.

Drawdowns

4. The Extended Drawdown Period, which opened on 3 February 2014, will remain open for an additional two years to 31 January 2018.

Borrowing Allowance

5. Participants in an FLS Group (with the exception of “New Groups”, as defined below) can continue to draw in aggregate up to their Extended Borrowing Allowance for a further six months, up to 29 July 2016. The definition of the Extended Borrowing Allowance is unchanged, and will be based on lending from 2013 Q2 to 2015 Q4. No new borrowing allowances can be generated by lending after end 2015 Q4.

1 www.bankofengland.co.uk/markets/Pages/FLS/default.aspx

6. From 1 August 2016, Participants in an FLS Group (with the exception of New Groups) can continue to

draw in aggregate up to the “Scaled Borrowing Allowance” for the FLS Group. The Scaled Borrowing

Allowance is equal to a percentage of the Extended Borrowing Allowance, as set out below:

i. 75% for the period 1 August 2016 to 31 January 2017;

ii. 50% for the period 1 February 2017 to 31 July 2017; and

iii. 25% for the period 1 August 2017 to 31 January 2018.

7. If an FLS Group’s Scaled Borrowing Allowance drops below the aggregate drawdowns made by

Participants in the FLS Group, no further drawdowns can be made (but participants will not be required to

repay any drawdowns, and the fee charged on outstanding drawdowns will remain 25 basis points).

Participation for newly authorised banks

8. Some newer banks and building societies (hereafter “banks”) will have the option to join the Scheme

and generate a borrowing allowance from net lending in 2016 and 2017. New applicants to the FLS

Extension may apply to have their FLS Group designated a New Group. Banks eligible for this part of the

Scheme will be those meeting the existing eligibility of the Scheme, and that have been authorised or had a

significant change in control since 1 April 2013, and whose prospective FLS Group had a stock of sterling

lending to UK households, Private Non-Financial Corporations (PNFCs) and Non-Bank Credit Providers

(NBCPs) of no more than £50mn as at end-2015. This designation will be granted at the Bank’s discretion.

9. Participants in a New Group may draw in aggregate up to the “New Group Borrowing Allowance” for the

FLS Group. The New Group Borrowing Allowance is determined by net lending during the period 1 January

2016 to 31 December 2017. The New Group Borrowing Allowance will be equal to the sum of net lending

over this period to UK resident households (excluding Unincorporated Businesses), Large Corporates and

Non-Bank Credit Providers that are not part of the FLS Group2 plus five times net lending to UK resident

SMEs. If this weighted sum is negative, the New Group Borrowing Allowance is zero. Lending data for this

period will be reported on Form FLC3, which must be submitted quarterly, based on calendar quarters.

10. Other than as defined above, the terms of the FLS Extension, including the fee charged, are the same

for New Groups as for other FLS Groups participating in the Scheme.

Audit requirements

11. The Bank had previously stated that it would require Participants to provide an independent audit report

on the accuracy of the data provided to the Bank for the FLS Extension by 17 March 2016. The Bank will

confirm details of audit requirements in due course, but will no longer require an audit report by this date.

2 Including financial leasing corporations and factoring corporations but excluding mortgage and housing credit

corporations as defined in the statistical definitions of Form AL.

3 http://www.bankofengland.co.uk/markets/documents/flsformflc.xls

Published information

12. The Bank will continue to publish usage data for each FLS Group participating in the FLS Extension on a quarterly basis. The Bank will also publish lending data for New Groups on a quarterly basis.

Bank of England

30 November 2015

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Absolutely no reference in there to how savers have been punished through this. FLS has possibly pushed more oldies into BTL than any other single policy (note that lending to BTL can be classed as business lending and so still comes under the scheme's remit)

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Meh. Winding down and it's not for housing anymore. Not too bad.

Indeed. Its probably that, outside of housing, the banks cannot lend to anyone.

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Absolutely no reference in there to how savers have been punished through this. FLS has possibly pushed more oldies into BTL than any other single policy (note that lending to BTL can be classed as business lending and so still comes under the scheme's remit)

True on the first point - notably absent. On the second point, they can reap what they've sown. It isn't only oldies with savings, and some of us aren't into leveraged people farming.

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HTB London, Help to Buy shared ownership and now FLS. Sounds like Osborne's doing the good old pumping while Camoron wants the bombing.

But.. why now..?

Too early on for an election but the global economy appears to be in contraction despite the usual outlets shouting 'recovery' and 'economic stability'

Are Osbourne banker friends worried? Thoughts?

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HTB London, Help to Buy shared ownership and now FLS. Sounds like Osborne's doing the good old pumping while Camoron wants the bombing.

But.. why now..?

Too early on for an election but the global economy appears to be in contraction despite the usual outlets shouting 'recovery' and 'economic stability'

Are Osbourne banker friends worried? Thoughts?

After quoting GO "The Funding for Lending Scheme will be gradually wound down as the recovery strengthens, delivering a managed exit from the scheme", the last comment on the story in the Grauniad's Business live section is:

"FLS could also be a handy weapon if the recovery weakens, of course..."

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"FLS could also be a handy weapon if the recovery weakens, of course..."

Or the new tax arrangements bring house prices down a bit too much - re-open FLS to OO mortgage lending...

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Funding for lending should be targeted towards offering reasonable interest rates and deals to viable businesses.....not securitised lending investment.

We need to get away from this addiction to accumulating land and building and start investing in ourselves and the desperately needed infrastructure this country is lacking in.

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Is this classed as shock news? Who didn't expect this? It's permanent.

With no announcement in last week's Autumn Statement, I thought they were letting the scheme run its last few weeks. So yes, this is a big surprise. All other extensions have been announced by Gidiot, to much fanfare IIRC.

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Banks have access to liquidity into a HPC. Good. They can draw on it to show they are solvent.

You can't print capital. Only markets can create capital by valuing assets above liability. Although they can use the sovereign position of the country and its balance sheet to create liquidity (debt onto Gov books) to slow/stop correction for some time, as we've seen. And perhaps banks will get even stingier to loan applicants who they have no trust in, especially in a falling market.

Central banks don't have magic powers. They can create liquidity by creating debt, but that isn't the same as creating capital. Whenever a central bank monitizes an asset by buying it (printing press money) - it creates a liability. Running the printing presses at a higher speed destroys more wealth than it creates. Only the market can create capital by valuing assets above liabilities.

Not everyone wants to borrow their heads off (despite others wanting to push them to do so especially for forever HPI).

In Aberdeen there is no plans for the oil majors to borrow that hard. They've already got their hands full managing costs.

The timidity of the banking system appears to have been general and widespread. Indeed, the 1939 survey found that over half the reasons given for credit refusals by banks were "bank policy"; only a third were because of "the condition of the borrowing concern."

-Michael A.Bernstein
The Great Depression
With the value of real estate collateral falling, the true market value of construction and other real estate loans will fall. Bankers like other lenders, like their predecessors after 1929, will not wish to magically turn one dollar of cash into a loan worth just eighty cents, much less sixty cents. When the value of collateral falls, and the public's demand to hold cash rises, even easy money at the Fed may not stop deflation. Cash could be hard to come by, and idle credit lines may be withdrawn. If your business has seasonal needs, anticipatory borrowing may make sense. If you cannot secure irrevocable letters of credit, you may wish to borrow now. You can place the cash your realize from anticipatory borrowing in interest-bearing accounts, and absorb the loss as a price of doing business. It could be cheaper than dealing with a loan shark, as many small businesses were forced to do in the last depression.
Edited by Venger

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So the banks and the country are both still in serious trouble despite Carney claiming they're over the worst and Cameron looking for fresh targets to bombard.

Edited by billybong

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So the banks and the country are both still in serious trouble despite Carney claiming they're over the worst and Cameron looking for fresh targets to bombard.

Latest bank stress test results out tomorrow. Clearly all is not good...

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Latest bank stress test results out tomorrow. Clearly all is not good...

Better (for those of a hpc mind) they stress-test them, like back in to no-more-boom-and-bust.

You need a reminder of one of the last stress tests?

http://www.bbc.co.uk/news/business-30491161

Three Truths for Finance - speech by Mark Carney

21 September 2015

Remarks given at the Harvard Club UK Southwark Cathedral dinner, London.

______________

[...]To resist their siren calls, policymakers and market participants must bind ourselves to the mast. That means building institutional structures that make it harder to act on the lies.

Over the past seven years great strides have been made.

Take “this time is different”.

To guard against future complacency, policy frameworks have been substantially overhauled. The Bank of England has been given formal responsibility to maintain financial stability and has considerable powers to promote it. In anticipation of problems, we have increased bank capital and tightened mortgage standards. We are using our monetary policy and macroprudential policy tools in concert, so that a low for long interest rate environment can promote both price and financial stability.

Moreover, when next time proves no different, the financial intermediaries at the core of the system will be on a substantially stronger footing.

Their capital requirements have already increased ten-fold and their liquid assets are up four-fold. Their trading assets are down by a third and intra-bank exposures by two-thirds.

[..]And to consign the Age of Irresponsibility well and truly to history, London, as the largest global market, must lead the development of global standards.

http://www.bankofengland.co.uk/publications/Pages/speeches/2015/843.aspx

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Meh. Winding down and it's not for housing anymore. Not too bad.

No the SME adjustment effected the type of lending that determines access to additional funding, not what existing and additional scheme funds can actually be used for. (via freetrader - http://www.housepricecrash.co.uk/forum/index.php?/topic/194077-the-bank-of-england-clueless-thread/page-108#entry1102836855)

Edited by northshore

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