Mervyn King says cheap short-term loan cash is coming

BANK OF England governor Sir Mervyn King last night pledged to provide cheaper short-term funding to help Britain’s banks increase lending to businesses.

King said the financial policy committee recognised that banks needed lower-cost sources of capital and greater liquidity to limit any losses from the euro crisis.

The Bank and Treasury will together announce a “funding for lending” scheme in the coming weeks that will provide funds to banks at rates below current market rates. But he said banks would only get the money if they increased lending to the non-financial sector.

King told an audience of business leaders and politicians at the Mansion House, London, that the Bank would provide banks with “whatever liquidity they require given the prospect of turbulence ahead”.

He said that further funding support to the banks could go hand in hand with further injections of funds through the quantitative easing programme.

“Before the crisis… some [banks] got by on faith and the hope that nothing would go wrong. When it did go wrong, they relied on the charity of taxpayers to survive. It is no longer acceptable for banks to rely on faith, hope and charity.

“In present circumstances banks face challenges of liquidity, funding and capital – and the greatest of these is capital. Difficulties in liquidity and funding are often a reflection of insufficient capital.”