BoE launches Term Lending Scheme with £100bn available

Ryan Fowler

August 4, 2016

mark carney governor of the bank of england

The Bank of England is launching a Term Funding Scheme as it looks to ensure that both banks and building societies pass on the base rate reduction to consumers. 

Bank of England governor Mark Carney said the  TFS will allow banks to borrow directly from the BoE with £100bn available to finance the scheme.

Banks will be able to borrow a proportion of their outstanding lending to UK businesses and households for four years at rates close to 0.25%.

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However if banks do not lend they face being penalised with a 0.5% charge based on their borrowing from the scheme.

He said: “The TFS will allow banks and building societies to access funding at rates that will nutralise the effect of the cut which could have caused them to not pass on the benefits to consumers.”

Half of all UK mortgages are on floating rates, as are four-fifths of bank loans, so the cut in interest rates should be felt immediately.

Carney also signaled that the Monetary Policy would be willing to cut rates even further if it felt it was required.  The TFS sits alongside the £100bn Funding for Lending scheme which Carney also said could be increased.