The Bank of England and HM Treasury on Friday unveiled the details of the 'Funding for Lending Scheme', a programme aimed at boosting lending to real economy.
Banks that increase lending to households and businesses will be able to borrow more from the BoE, and that a lower cost. Accordingly, the BoE will make GBP 80 billion available if banks raise their lending by 5 percent.
Moreover, there will be no upper limit on the size of borrowing.
Despite policy action taken by authorities, the flow of credit to households and businesses remain impaired. The new scheme is introduced to reduce the price at which banks and building societies are able to fund themselves.
The FLS will open for drawings on August 1. For 18 months thereafter, banks and building societies will be able to borrow UK Treasury Bills from the Bank for a period of up to 4 years against eligible collateral, for a fee.
The BoE will publish the details of lending by each participating banks to households and firms and also banks' borrowings from the central bank on a quarterly basis.
"Today's announcements aim to make mortgages and loans cheaper and more easily available, providing welcome support to businesses that want to expand and families aspiring to own their own home," Chancellor George Osborne said.
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