Some thoughts to bear in mind before digging a grave for the Funding for Lending Scheme

FFS, FLS!

Six months into the Bank of England’s Funding for Lending Scheme (FLS), and we seem eager to anticipate its demise, like wolves padding after a limping bison.

The scheme, which offers banks funding at a discounted rate of interest so long as those lower rates are passed on to customers, has so far seen £13.8bn drawn from the Bank’s pot of £100bn, of which £9.5bn was accessed in last year’s final quarter.

The problem was, Q4 also saw overall bank lending drop by £2.4bn compared to the previous three months.

Oh those naughty, naughty banks. Lloyds Banking Group, RBS and Santander cut their lending totals by a combined £7.6bn during the quarter, despite drawing down £4.8bn between them through the scheme, while Barclays, despite growing lending during Q4, did so by only £5.7bn while drawing down £6bn.  

Of course, if banking was simple, we’d expect lenders to have squirted money into the hands of consumers and small business owners with wild abandon, in exactly the quantities drawn down.

But then, despite all our desires to the contrary, banking isn’t particularly simple. Here’s some thoughts to bear in mind before digging the FLS’ grave early.

First, as the Bank has already pointed out, the fourth quarter is never the strongest time for lending in the first place, and we would have been worse off without the boost of the FLS

Second, we shouldn’t forget the wider context, of major banks being mandated to shore up their capital bases in order to avoid being as exposed to ruin as they were in 2008. Unfortunately, the main way for them to do this is by cutting back on lending.

Third, there is a time delay on the reduced cost of funding offered by the scheme trickling through to customers, as it takes time for loans to make it through from application to payout. This has now been stated by the Bank often enough to feel a tiny bit “dog ate my homework”, but is still a fair point.

All things considered, I’m surprised people’s expectations were so high. Even before launching the scheme, the Bank predicted that we’d have to get some way into 2013 before we saw the real benefits of the scheme.

And before we expect miracles, let’s remember the fundamental obstacle facing the scheme: it can’t do anything at all about the cost of risk, i.e. what banks have to put aside in contingency for loan defaults.

Very small businesses, very new ones, and those in sectors considered by lenders to be on the ropes, will still have great difficulty being touched with a bargepole while the discounted funding can be channelled into lending to safe bets.

And who can blame the banks? We’ve spent five years pillorying them over subprime lending, so is it really a surprise they are so risk averse now? By demanding that banks pile more money into the SME sector, we are explicitly asking them to take greater risks.

So let’s give Threadneedle Street the benefit of the doubt and have this whole conversation again after Q1. If the scheme isn’t working, replacement isn’t out of the question - after all, the FLS was created to replace the underwhelming National Loan Guarantee scheme, which was quietly phased out after only six disappointing months.  

But let’s also revise down our expectations of what will constitute success for the FLS. If used correctly it will be able to soothe the symptoms of a deeply troubled system, but it’s never going to touch the roots of the problem.

Bank of England. Photograph: Getty Images

By day, Fred Crawley is editor of Credit Today and Insolvency Today. By night, he reviews graphic novels for the New Statesman.

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The murder of fearless journalist Pavel Sheremet must be solved - but Ukraine needs more

Sheremet was blown up as he drove to host a morning radio programme

On 20th of July Kiev was shaken by the news of the assassination of the respected Belarusian journalist Pavel Sheremet. Outside the ex-Soviet republics he was hardly known. Yet the murder is one that the West should reflect on, as it could do much to aggravate the Ukrainian-Russian conflict. 

Sheremet was one of the most significant and high profile investigative journalists of his generation. His career as an archetypal  examiner of the post-Soviet regimes in Belarus, Ukraine and Russia bought him fame and notoriety in the region. From 1997 onwards Sheremet became a name for fearless and non-partisan interrogation, both in print and as also as TV presenter. He paid the price early on when he was incarcerated by the Belarus government, then stripped of his Belarusian nationality and deported. Such is the way of things in the region.

Taking up residence in Kiev, Sheremet became immersed in interrogating the political life of Ukraine. He wrote for the Ukrayinska Pravda publication and also helped to develop a journalism school. Under these auspices he was a participant of a congress, "The dialogue between Ukraine and Russia", in April 2014. He reported on beginnings of the Euromaidan uprising. He warned of the rise of the concept  of "Novorossia" and suggested that Ukraine needed to reset its current status and stand up to Russian pressure. After the Russian occupation of Crimea his blame for the Ukrainian government was ferocious. He alleged that that they "left their soldiers face to face the [Russian] aggressor and had given up the Crimean peninsula with no attempt to defend it." These, he said "are going to be the most disgraceful pages of Ukrainian history."

Sheremet was blown up at 7.45am on 20 July as he drove to host a morning radio programme.

Ukraine is a dangerous place for journalists. Fifty of them have been murdered since Ukraine achieved independence. However, this murder is different from the others. Firstly, both the Ukrainian President and the Interior minister immediately sought assistance from FBI and EU investigators. For once it seems that the Ukrainian government is serious about solving this crime. Secondly, this IED type assassination had all the trappings of a professional operation. To blow a car up in rush hour Kiev needs a surveillance team and sophisticated explosive expertise. 

Where to lay the blame? Pavel Sheremet had plenty of enemies, including those in power in Belarus, Russia and the militias in Ukraine (his last blog warned of a possible coup by the militias). But Ukraine needs assistance beyond investigators from the FBI and the EU. It needs more financial help to support credible investigative journalism.   

The murder of Pavel Sheremet was an attack on the already fragile Ukrainian civil society, a country on the doorstep of the EU. The fear is that the latest murder might well be the beginning of worse to come.

Mohammad Zahoor is the publisher of Ukrainian newspaper The Kyiv Post.