The Bank of England should consider buying more assets other than government bonds as part of a wide-ranging programme to revamp Britain’s banking infrastructure, policymaker Adam Posen said yesterday.
Dr Posen said that more needed to be done to boost loans to smaller businesses, including standardising loan applications, sharing credit rating data and developing a junk bond market.
Most economists expect the Bank to approve another £50bn of asset purchases at next week’s Monetary Policy Committee meeting, but purchases of assets other than gilts appear to be off the agenda.
At the start of its quantitative easing programme in 2009, the Bank did buy some corporate bonds and commercial paper, but the small size of these markets meant purchases of those assets totalled only a small fraction of the nearly £275bn of gilts bought.
Dr Posen said that proposals, which he backed, to improve the financial infrastructure for smaller businesses had lost momentum over recent months.
“There is too much of a fear of a public role in creating financial infrastructure,” he said. “It would not be the end of the world if the MPC were, as part of the asset purchases, to buy things other than gilts to this end.”
He also said that banks were using new capital and gearing requirements as an excuse to limit lending, and rejected banks’ claims that there was little demand for loans, noting that the cost of borrowing was still rising.
Dr Posen said banks are “not doing the job” of providing credit for growth. “We’ve got to change the competitive pressures on them, change the rules on them so they’re forced to do the job right,” he added.