The Term Funding Scheme: Design, Operation and Impact
9 Pages Posted: 4 Jan 2019
Date Written: December 21, 2018
In August 2016 the Bank of England’s Monetary Policy Committee announced a package of measures, with mutually reinforcing elements, to support growth and return inflation to target. The measures included a Term Funding Scheme (TFS), which provided funding to participating banks and building societies at interest rates close to Bank Rate.
The design of the TFS reflected its primary objective which was to reinforce the pass‑through of the August 2016 cut in Bank Rate to the interest rates faced by households and businesses, against a backdrop where Bank Rate was close to zero.
The Scheme appears to have achieved its primary objective with evidence suggesting that the reduction in Bank Rate was passed on to lower lending rates on loans such as mortgages, without significant compression in lenders’ net interest margins or the supply of credit to the economy.
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