Gemma Harle is managing director of Tenet Lime
October, traditionally a month of frights and tricks, heralds the arrival of the MMR.
But in addition to the MMR there has been a lot of other encouraging and arguably more significant changes taking place on the supply side.
No amount of regulation is of any use if there is no lending so thankfully the Funding for Lending Scheme, though in its infancy, is looking like a success story – one that will affect us all sooner than later.
Overall by mid September 13 banks and building societies have taken part in the scheme to boost lending to cash-starved businesses and borrowers.
But arguably the most important news followed a few days later with the announcement that the Financial Services Authority had eased capital buffers for the UK’s largest banks, meaning that loans given through the government’s Funding for Lending scheme can be effectively be classed as risk-free.
According to the Financial Times the move put “Britain at the forefront of a global experiment to use bank regulation to moderate the economy cycle”.
We should not underestimate the impact of this move. While banks would always take advantage of the opportunity to refinance cheaply, the regulatory pressure to boost capital ratios coupled with an unattractive cost of capital would have significantly held back any desired growth in lending.
Many commentators worried that the scheme’s implicit assumption that funding – rather than capital – is the key constraint on credit supply was flawed. The announcement by the FSA dealt with this spectacularly.
The Bank of England’s new Funding for Lending Scheme is unexpectedly generous and will benefit banks and existing borrowers.
Little by little, policy makers are removing the excuses for not lending.
What’s more, as the small slice of the lending market that everyone is fighting over becomes more crowded, expect subtle moves into areas such as self-employed.
October isn’t all about horror stories.