Monday, 3 October 2011

Credit easing...what?

The Chancellor has announced something called "credit easing". Er, what?

No, it's not quantitative easing, something the Bank of England does off its own bat (which is a bit like printing extra money).

Credit easing is a way of making it easier for businesses to borrow money if lending gets very difficult again, as a result of the Eurozone debt crisis.

In other words, if there's another credit crunch.

Companies raise billions of pounds by selling bonds or IOUs to investors and City firms. Bonds provide a method of borrowing money without taking out a bank loan.

But in a credit crunch few people want to lend so it's hard to raise the cash needed to keep going or expand.

That's where credit easing would come in.

The Treasury could direct the bank of England to buy company bonds, if the Eurozone crisis prompted banks over here to draw in their horns even further.

The strategy would make it easier for businesses to get credit. And there would be a small risk that the Treasury could lose money.

What about small businesses?

The suggestion is that banks would be encouraged to parcel up their small business loans into bonds, which the Bank would start buying as well.

More details likely in November.

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