Forex Flash: UK FLS: non-participation trims cap by £20bn to £60bn – Capital Economics

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FXstreet.com (Barcelona) - Economist Phillip Rush has taken a look at the Funding For Lending Scheme ( FLS ) which, in the first announcement at implementation, revealed that the loan book of participating banks and building societies was £1.2trn.

He notes that under the current 5% cap, that means that £60bln can be drawn from the scheme "which is £20bn less than if all institutions had participated."

He continues, "Had lenders increased their loan books, more than £60bn could be drawn (one-for-one), but we doubt this will happen in significant scale. Alternatively, the scheme could be changed to have a higher cap (e.g. 10% of loans or widening the relevant book) or to have lower costs (e.g. smaller haircuts), which may induce some hold-outs to enter the FLS."

When considering the failure of the recent ECTR auctions alongside this, Rush notes that recent policy initiatives seem unlikely to tie more than £70bln of funds to the Bank rate which he feels may disappoint the MPC.

If QE3 is expanded by £25bln to £75bln in November as expected, "more reserves than this will have been created over the past few months." Rush notes that this is important because Bank reserves are remunerated at the Bank rate, "so the case for a Bank rate cut being effective has actually weakened over the past few months when the broader monetary response is considered."



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Forex and Currencies

Referenced Stocks: FLS

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