Funding for Lending: Grim Data
Today the Bank of England released the latest figures on the progress of the Funding for Lending Scheme.
They can be found here and, despite the Bank’s relatively optimistic take, make for fairly grim reading.
After growing their net lending by £0.9bn in Q3, net lending from FLS participating banks contracted by £2.4bn in Q4 2012.
Lloyds has drawn down £3bn and shrank lending by £3bn in the final quarter. RBS has drawn down £750m and shrank landing by £1.7bn in the quarter, while Santander has drawn £1bn and shrank by £2.8bn. Only Barclays seems to be on message, drawing £6bn and managing a cumulative £5.7bn in additional lending since the FLS was introduced at the end of June last year.
Imagine how bad things would be if we didn’t have the FLS.
That last point is crucial one – evaluating the success of the FLS scheme will also remain difficult as it relies on the counter-factual that ‘things would be a lot worse with the scheme’. That maybe the case, but the current contraction in bet lending remains concerning.
The first lesson is that net lending has grown by just 0.036% in the first quarter of the scheme despite £4.4bn of support. This isn’t a good result and suggests a serious weakness of credit.
The second lesson is that the success of the scheme really will depend on the co-operation of the big banks. between them Lloyds, RBS, Santander and Barclays (HSBC is not part of the scheme) have 75% of the total loan stock of participating banks. In the final analysis it will be those banks that make the difference to loan growth.
The big question though is exactly what kind of lending is growing? The Bank data doesn’t distinguish between lending to business and lending to households. Other data suggests that lending to business is still falling. It may well be the case that lending for mortgages is growing at a weak pace whilst lending to firms continues to contract.
After today’s numbers, that big question remains.
FLS may prove more effective than QE in boosting lending but as long as it relies on the current UK banking system, I question how effective it will actually be in supporting in the real economy and in particular firms.
The worry is that FLS, like the National Loan Guarantee System and Project Merlin before it, is simply not living up to its promises.
As I’ve argued elsewhere, ensuring that we get an effective banking system that actually supports real economy companies requires more fundamental change.