UK Economy: Banks Told To Free Up Funds For Public Lending

New Measures To Make Banks Lend More

Plans to free up billions of pounds of cash held by banks were announced on Friday to help kickstart lending in the latest attempt to ward off a tightening credit squeeze.

The Bank of England said City regulators should tell banks they can tap into large amounts of cash held on their balance sheets if needed in the face of a worsening eurozone crisis.

The Bank hopes the move will offer a substantial amount of cash to lenders, estimating total liquidity held across Britain's banking system at around £500 billion.

On unveiling the Bank's latest Financial Stability report, Governor Sir Mervyn King said: "Our challenge remains making sure the banks are in the best possible shape to weather the storms they are facing and those that lie ahead so they can support lending to the real economy."

Sir Mervyn King wants banks to put more money in the hands of the public

He added: "Banks have built up significant assets in recent years. They are in a strong position to withstand a period of market stress.

"But it's very important that they are willing to use them in times of stress to support lending to the real economy."

It is the next plank in the Bank's strategy to help Britain's economy recover from its double-dip recession, following the announcement earlier this month of a £100 billion-plus scheme to boost bank lending.

The Bank is working on a new "funding for lending" scheme, while last week it held its first £5 billion monthly auction under a six-month loan facility programme.

Sir Mervyn also addressed the Barclays Libor-fixing scandal, calling for "real change" in the banking industry.


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