Penalising banks will 'force them to lend'

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Penalising banks will 'force them to lend'

Fri 11th Sep 2009

If the Bank of England penalised lenders for keeping money held in their reserves it would kick-start some more possibilities for borrowers, according to an industry expert.

Alan Clarke, UK economist at BNP Paribas, claimed that banks would either then buy government bonds or lend money out to consumers, which would support the quantitative easing policy.

He made his comments in response to the idea that the Bank of England could impose negative interest rates on reserves held with them.

"I am not sure whether it will happen this month but either next month or this month I think it is quite likely," he added.

Mr Clarke supported the move and pointed out that it would not affect your average man in the street, it would simply encourage banks to lend more money.

The notion of putting negative interest on banks' reserves was mentioned by former monetary policy committee member Charles Goodhart last month.

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