£140 billion funding for lending scheme to protect the UK from the Eurozone crisis

Whilst the financial crisis in the Eurozone continues the UK does not want to sit around and avoid taking measures to protect itself. Consequently in order to help protect the UK from the Eurozone financial crisis, the UK Treasury and the Bank of England have announced a £140 billion plan that is hoped will both protect and also jump start the British economy.

There are many proposals but the main plan is to provide billions of pounds in cheap loans to the banks, who in return for this money will provide more needed loans to businesses and more mortgages to households. This is hoped will help investment in business and increased production, together with helping people to buy homes and providing a boost to the property market. Overall it is hoped that this measure will help support the flow of credit to where it is really needed.

The money being made available will be through a ‘funding for lending’ scheme. This scheme will provide cheaper than normal loans to the banks for a length of time that could be several years. The amount of money an individual bank will receive, and at what cost, will be determined by the lending performance of that bank. The lending performance of each bank receiving money from the funding for lending scheme will be determined by the bank’s ability to maintain or expand their lending levels to households and UK businesses that are outside the financial sector.

An additional proposal from the Treasury and Bank of England is to provide a short-term liquidity scheme that banks can use to cover their cash shortfalls. This liquidity scheme will provide a cheaper and simpler way for the banks to cover their cash shortfalls than the facilities they currently have to use.

The Bank of England says that these measures are being put in place to help protect the UK during these financial stormy times until calmer times return!

These measures are very welcomed especially as there have been recent rises in the costs for commercial mortgages, loans and other financial facilities due to the banks struggling to raise money due to the ongoing Eurozone problems. The measures should also help to protect the UK banks from the impact of the Eurozone financial crisis because they will not be so reliant on the international markets in order to raise money.