While the legal foundations are unsure, the signals for looser lending could scarcely be clearer. The BoE has cut capital requirements, put cheap funding schemes in place and deprioritised non-urgent supervisory work. Sam Woods, deputy governor, says the Bank has been clear with major lenders that they should use their capital buffers to extend lending and they will be given enough time to build those buffers back up in future.
“Given the uncertainties we all face, we are keeping all of our measures under review and will not hesitate to take further steps,” Woods adds.
Behind the scenes, lenders are working with regulators to assess which other rules might need changing as the sector prepares for a significant spike in Britons going bankrupt once government support is lifted later this year.
Bank bosses also fear they will face a public backlash when the time comes for them to collect debts. On a call with the Chancellor earlier this month, bank chiefs expressed their concern that his easy-to-access BBLS for small firms had been wrongly promoted as a giveaway. Sunak reiterated these were loans which he expected the banks to collect on behalf of the taxpayer.
“There are some within the SME community who are of the view that Covid-19 is the Government’s fault and therefore they’ll never be asked to repay this loan; that effectively it’s a grant,” says Jones.
“It is absolutely critical that we emphasise that this is a loan. If a business takes on the loan, runs into difficulty and defaults on the loan, banks are required by the Government on behalf of the taxpayer to pursue the debt via their usual channels. The banking industry is the collection agency and, unfortunately, I fear we will end up being the bad guys again when it turns out that money can’t be repaid.”