Scheme to get credit to recession-hit economy begins

LONDON (Reuters) - Britain's banks can start tapping into a new government programme to provide them with cheap funding designed to get more credit to flow through the recession-hit economy, the finance ministry said on Wednesday.

The scheme - which offers funding at below-market rates against a broad range of collateral if banks continue or extend lending to businesses and consumers - is likely to ultimately replace earlier credit easing schemes, the ministry said.

The "funding for lending" (FLS) scheme draw down window is now open for the next eighteen months and banks and building societies can borrow at cheaper rates, for periods of up to four years, the finance ministry added.

"The more generous FLS has officially opened for business and will in time effectively take over from the NLGS (National Loan Guarantee Scheme), delivering credit easing to the whole economy," George Osborne, the Chancellor, said in a statement.

Part of efforts to lift the economy out of recession, the plan was jointly announced by Osborne and Bank of England Governor Mervyn King in June and details were presented last month.

Previous schemes to spur lending since the financial crisis have failed to boost the economy. This has put pressure on the BoE and the Conservative-led coalition government, which have been quick to blame much of the country's economic woes on the neighbouring euro zone debt crisis.

Osborne and the Bank insist that the latest credit easing scheme will be different, as it ties banks' access to the scheme and cost of using it directly to whether they raise total lending to British firms and households.

The government is making an initial 80 billion pounds available, though how much the economy is boosted will depend on banks' demand for the cheap funding.

(Reporting by Sven Egenter; Editing by Andrew Osborn)

Source: http://news.yahoo.com/scheme-credit-recession-hit-economy-begins-050221233--business.html

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