The Term Funding Scheme: Design, Operation and Impact

9 Pages Posted: 4 Jan 2019

Date Written: December 21, 2018

Abstract

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.

Suggested Citation

Ginelli Nardi, Bianca and Nwankwo, Chukwuma and Meaning, Jack, The Term Funding Scheme: Design, Operation and Impact (December 21, 2018). Bank of England Quarterly Bulletin 2018 Q4. Available at SSRN: https://ssrn.com/abstract=3310110

Bianca Ginelli Nardi (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Chukwuma Nwankwo

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Jack Meaning

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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