Fifteen billion pounds. For those of you who’ve lived through the past decade – crisis after crisis, of governments routinely spending enormous amounts to bail out their banks – that might not sound like a lot of money.
But, for what it’s worth, it amounts to about £550 for every household in the country.
It’s equivalent to a 3p one-off income tax cut.
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It would finance the construction of Britain’s two new (monumentally expensive) aircraft carriers, and still leave change for three more.
So the fact that the Bank of England announced today that it would electronically print an extra £15bn of money to pour into Britain’s financial system is not without consequence.
But if the Bank gets its way you’re unlikely to hear much about this in the press.
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That’s because this £15bn is going into one of the most technical, abstruse schemes the Bank has ever devised.
The Term Funding Scheme was established in the wake of last year’s Brexit vote, to encourage banks to lend more cash to consumers and to pass on lower interest rates to households.
In short, the Bank was worried that with interest rates at historic lows, high street lenders (whose business models rely on making a turn on their loans) would fail to pass on the rate cut to consumers.
So the BoE promised to lend those banks money – and lots of it – if they lent it on to their customers.
And where did the BoE get that money? It printed it.
Over the past year, the Bank has printed over £78bn of cash and lent it to Britain’s banks to encourage them to lend.
While this is subtly different to the quantitative easing scheme in some senses (under QE the Bank printed money to buy assets; in the TFS it prints money to lend to banks temporarily, taking collateral in exchange), in other senses it is similar.
For one thing, it involves a sharp increase in the size of the Bank’s balance sheet.
After this increase the total size of the Asset Purchase Facility (basically all the money the Bank has printed) will rise from £545bn to £560bn.
For another, it acts as a stimulus for the economy.
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It won’t have escaped your attention that over the past few months a number of economists (including, ironically, some at the Bank), have sounded the alarm over rising rates of consumer debt.
Well, the chances are a good chunk of that lending has been encouraged by this BoE scheme.
Lo and behold, the Bank has now announced that as things stand, consumer lending is increasing at such a rate that by the time the TFS comes to the end of its life, next February, it will have breached the £100bn total the Bank expected from it.
That left the Bank with two choices: increase the total amount going into the TFS, or shorten its life. It chose the former.
In some senses, that was the easy decision.
It is not for the Monetary Policy Committee to intervene in the financial system (there is a difference). That is the job of another part of the Bank – the Financial Policy Committee.
But it does leave us in an interesting situation.
It is quite plausible the FPC introduces some checks and constraints on lending in the coming months. So the Bank would effectively be pressing the accelerator and the brake pedal at one and the same time.