£10.8bn lent to biggest firms, says Bank chief
In his first newspaper interview since taking over as Governor of the Bank of England, Andrew Bailey says . . .
A BANK of England scheme set up to help larger companies with emergency loans has already dispensed some £10.8bn to around 35 big firms.
The scheme is advancing funds at a run rate of half a billion pounds a day, according to Andrew Bailey, Governor of the Bank of England.
The cash will help corporations to make a comeback once the crisis has receded.
Around 300 of Britain’s most important companies are eligible for the scheme. They account for around a quarter of the total turnover and 18pc of employment in the UK.
In addition to the £10.8bn already taken, another £25bn has been agreed for them and a further 30 companies, which have been approved but have not yet drawn on their facilities.
Another 100 firms have applied and have been approved as eligible in principle, once their paperwork is sorted.
The Covid Corporate Financing Facility, set up in March, is a key element in the Government’s £330bn loan rescue programme.
The Bank has set in train a range of measures to aid the economy. Interest rates have been cut to just 0.1pc, a record low, and it has pledged to carry out billions of pounds more quantitative easing, which floods the system with newly-minted money.
The Bank has also taken steps to ensure UK lenders have ready access to US dollars. In an interview with the Daily Mail, Governor Bailey said he did not believe the actions taken would fuel inflation. The large company loan scheme, he said, is doing what it is meant to do: ‘It has saved jobs.’
When Andrew Bailey switched on his TV at home on Monday evening for the latest Covid- 19 coverage and saw that the price of West Texas Intermediate oil had plunged into negative territory, it was something of an alarm call.
For the Governor of the Bank of england – one of the small team of executives on the front line during the 2007-09 financial crisis – it was a signal that the turbulence on markets is far from over.
‘It was fairly clear that this was closely related to Covid and demand for oil,’ he tells the Daily Mail in his first newspaper interview since taking over from Mark Carney on March 16.
‘Central banks had to stabilise markets and bring a huge amount of firepower. It was a reminder you can’t assume this is ever done.’
It was a baptism of fire even for a man who has been with the Bank since 1985 and has lived through every financial debacle since.
‘The first week or two were pretty extreme,’ he says. ‘On day three, the Wednesday of my first week, markets were borderline disorderly.’
That is a piece of typical Bailey understatement, as shares were in turmoil.
But this is a man legendary for his calm. One story told about him is that, in the middle of the northern Rock disaster, he took a phone call from his American wife Cheryl who was trying to fend a marauding bear at their holiday home in Idaho, United States.
Cheryl, a professor of public policy at the London School of economics, chased off the grizzly and her husband carried on saving the financial system.
This crisis, however, has tested even his legendary sang-froid.
Speaking to us from an almost empty Bank building on Threadneedle Street, Bailey, 61, now spends half his week in his usual office and the other half at his family home in Kent. When he arrived in the Governor’s office last month, some 50pc of the Bank’s staff were still operating from their desks.
As lockdown was imposed a week later, all but a handful of staff began working from home.
That means major operations, such as buying up billions of pounds of gilts – IOUs issued by the Government – or dispensing huge sums in crisis aid to large businesses, are being carried out from officials’ kitchens and living rooms, under appropriate security of course.
Bailey is pleased with the heavy lifting the Bank has done in channelling funds to larger corporations since the lockdown began.
But he is more critical of the Coronavirus Business Interruption Loans Scheme (CBILS) for small firms which he says has been ‘clearly not satisfactory’. The rescue plan for big corporates has dispensed just over £10bn, enabling ‘businesses to come back’ when the medical crisis recedes and the lockdown is eased.
ON MONDAY of this week ‘just over £10.4bn had been lent, a run rate of half a billion pounds a day,’ Bailey says. The scheme is doing what it is meant to do. he says: ‘It has saved jobs.’
Bailey is far more circumspect in his comments on the CBILS support for small businesses, where the Bank doesn’t have a direct role. he says he is talking to the banks on a ‘regular basis’ and has been trying to ‘gee them up’.
however, he acknowledges that there ‘are bottlenecks at various points in the chain’ and, as a result, the banks are ‘ finding it hard to deal with the flow’.
he is reluctant to condemn the banks. Lenders are being deluged with applications at a time when they are short- staffed due to the virus.
Many of the small firms lodging claims ‘ have never applied for credit, and do not have business plans. The problems of risk assessment gum up the operations,’ he says, adding that the system ‘needs to be un-gummed’.
he has hinted that a ‘grant’ scheme – instead of loans which are 80pc guaranteed by the Government – might work better.
The current system has problems because many firms do not want to take on debt at a time like this. And because the banks are on the hook for some of the money if firms cannot repay, they are forced to do time-consuming risk assessments. A highly-respected operator, Bailey has spent virtually all his career at the Bank after graduating from Queens’ College Cambridge, where he did history.
his most recent job was as boss of the Financial Conduct Authority, where he came under fire over the neil Woodford affair. But that was one of only a very few blots on the copybook in a long career.
The Bank will set out its view on the economy and on the health of the financial system in two separate reports in early May.
As part of that, it will be trying to test the resilience of the financial system. he acknowledges that none of the stress testing done until now has been ‘motivated by a pandemic’.
his main concern for the economy is to minimise what the Bank calls the ‘scarring’ – things like ‘ business failures, long- term unemployment. We’re determined to keep that to a minimum.’
Some fear that the actions the Bank is taking risk fuelling higher inflation down the line – a concern for Bailey, whose job is to keep it at around 2pc.
his feeling, however, is that the collapse in the oil price ‘will put downward pressure on inflation’.
equally, he rejects suggestions that the current disruption to the normal economy could lead to Japanese-style deflation. he suggests there is every reason to believe there will be a V- shaped recovery depending on how lockdown is lifted.
As a veteran of the financial crisis, he observes that the coronavirus fallout has ‘happened a lot more quickly’, noting there was a full year between the collapse of northern Rock in the summer of 2007 and Lehman in 2008.
‘This has happened in a small number of weeks,’ he says.
Despite taking over in the middle of the most frightening crisis of our lifetimes, Bailey does not betray the least trace of panic. he has the confidence of a man who has lived through multiple disasters and coped with all of them.
That should be reassuring to us all.