In an unprecedented move, The Bank of England on Wednesday published a joint letter with the Treasury and the Financial Conduct Authority (FCA) asking banks to ‘take all action necessary’ to help businesses and consumers.
The letter, jointly signed by Chancellor Rishi Sunak, Bank of England governor Andrew Bailey and FCA head Chris Woolard, reminds the banks that ‘you all have an important part to play in the UK response to coronavirus and we know that you will rise to the challenge to support the economy and protect jobs.’
It also lets the banks know that ‘the Bank of England and the FCA will be monitoring the situation closely and will be in regular contact to discuss developments and any issues emerging.’
BURDEN-SHARING
The central bank has already introduced the Covid Corporate Financing Facility (CCFF) for ‘large firms of investment grade or equivalent’ to provide additional access to funding in cases where the virus has disrupted firms’ cash-flows.
For small- and medium-sized businesses, it has created the Coronavirus Business Interruption Loan scheme (CBILS), which provides up to £5m of government-backed finance, as well as a new Term Funding Scheme to help banks continue providing credit to struggling firms and households.
However, the authorities clearly feel that while it has put the facilities in place for the banks to lend, the banks themselves may still be leery of extending credit in such an uncertain economic environment.
Just to ram the point home that it expects the banks to step up to the plate, the letter says that while it welcomes the action taken so far, ‘the priority for all of us - banks, building societies, government and the financial authorities - should now be to take all action necessary to ensure that the benefits of the measures outlines are passed through to businesses and consumers.’
It adds, ‘This will require a willingness to maintain and extend lending despite the uncertain economic conditions. We must ensure that firms whose business models were viable before this crisis remain viable once it is over.’
