Ooh! I bet nobody predicted this!

From the BBC:

The number of loans being offered by banks has continued to fall in spite of the Funding for Lending Scheme (FLS). The scheme, which began in August last year, was designed to encourage banks to lend more money, both to individuals and businesses, and boost the economy. But the Bank of England has announced that net lending fell by £2.4bn in the final quarter of last year compared with the previous three months. However, UK banks have taken up nearly £14bn since the scheme started...(1)

Chris Love, of the mortgage broker Mortgage Simplicity, said some of the banks were still trying to increase their reserves, rather than lend more money out. "The data has been skewed somewhat by the activities of a few of the larger banks slamming on the lending brakes to bolster their capital bases," he said.(2)

New figures from the banks themselves confirm that lending to businesses is continuing to fall. The British Bankers Association (BBA), which represents all the main banks, said lending to four million small and medium-sized businesses fell by £382m in the last quarter of 2012.(3)

The Treasury also claimed that the scheme has already had a significant effect. "It has already succeeded in reducing borrowing costs, with some mortgage rates at their lowest for five years," said a spokesperson. "For example, a two-year £100,000 mortgage with a 10% deposit is £1,000 cheaper in the first year than before the scheme started," he continued.(4)

1) Read the small print! Even if banks takes FLS money and reduces its lending slightly, it only has to slightly more than 0.5% interest.

2) Idiot. How can a bank increase its reserves or bolster its capital base by borrowing money, however cheaply? You increase reserves or bolster capital by either making profits or issuing shares.

3) Well duh, banks don't lend much to businesses in the good times, let alone in the bad times...

4) ... but as long as house prices are being propped up a bit, that's the main thing. All's well that ends well.