Funding for lending programmes

Funding for lending programmes (FFLs) seek to facilitate the flow of credit to the economy by enabling banks to access low-cost funding from the central bank. The funding often targets credit to specific sectors of the economy and is typically subject to conditions on its use. This paper discusses salient features of FFLs across both advanced- and emerging-market central banks drawing on insights from a Markets Committee workshop and survey responses from 14 central banks covering 27 FFLs. The paper considers goals and objectives of FFLs, their design aspects and effectiveness in achieving stated objectives. The paper also touches on risks and side-effects and discusses operational challenges that central banks face in implementing them. Funding for lending programmes were used by many central banks in response to the Covid crisis. Several central banks, such as the Bank of England and the European Central Bank, were already familiar with them, having deployed them previously. FFLs supported three policy goals: monetary policy, financial stability or government lending programmes, or a combination thereof. Notwithstanding different policy goals, FFLs had common intermediate objectives, most importantly to provide liquidity to, and lower interest rates in, specific market segments. FFLs varied considerably in design due to differences in the objectives but also due to other factors such as risk tolerance or legal constraints. Many FFLs were considered effective in achieving their objectives, but not without risks and side-effects, such as the risk of specific sectors becoming dependent on cheap funding. Operational design can help to mitigate these side-effects.