some other businesses won ’ t get credit at any price. in aggregate, corporate lending is also probably being held back by the fact that the commercial property market is still weak. nearly 50 % of bank and building society lending to corporates is to the property sector and a good part of the rest will be secured on property. given losses suffered by most banks on their commercial property portfolios, they are reluctant to increase lending for that purpose. finally, some banks have had to cut back particular forms of lending as a result of state aid rulings, so they will struggle not to reduce their total lending, even if they use the fls to the full to support their core activities. we do need to keep the pressure on the banks individually and collectively to make sure that they continue to pass through lower funding costs and are lending where they can. the bank has made the funds available to support lending to uk households and businesses, it is up to the banks to deliver. that is one reason why we are publishing bank - by - bank outcomes under the scheme. we wait to see what the impact is of the fls on the stock of lending. the next data release on 4 march will be for end - december data. even though lending rates have fallen, that is still quite early for much extra money to have flowed from the application stage into actual loans, compared with previous plans which showed that lending was most likely to fall in aggregate without the fls. i would not expect to see a return to rising aggregate quantities until we start getting data for 2013 at the earliest. indeed the aggregate data which have been published already – for all banks, not just those in the fls – showed a small fall for the last quarter of 2012. nevertheless, it does seem that we have the beginnings of a revival in mortgage activity which is visible in the approvals data and that trend is widely supported by business contacts throughout the country. the underlying message from the fls is much the same as for monetary policy. monetary and credit policies can help provide the foundations for growth and ease the path for necessary real adjustments. but ultimately, the growth of the economy will depend on real factors such as expectations of real income growth and the productivity of uk firms and workers. households will borrow for housing or consumption if they have expectations of secure real incomes. firms will similarly borrow if they have expectations of demand for their goods and services. cheaper loan rates will help that process, but the fundamental drivers will still be those of the

funding and capital positions of the banks through, see for example, fr glahe, ( 1977 ) “ macroeconomics theory and policy ”, 2nd edition, publ : harcourt brace jovanovich. the definition of m4 can be found here : http : / / www. bankofengland. co. uk / statistics / pages / iadb / notesiadb / m4. aspx bis central bankers ’ speeches respectively, the special liquidity scheme, the funding for lending scheme and the capital recommendations by the fpc. what of our ability to influence credit markets directly? i want to argue that it largely reflects how we go about changing the supply of money. on the one hand, to increase the quantity of money in scale, quickly and safely, it is quite clear that gilts are the best instrument to buy : there is a large market and there is no resultant private sector credit risk taken by the public sector. many financial instruments tend to be priced by reference to the interest rates on sovereign debt and so changing gilt yields will have effects across sterling markets. in addition to buying gilts to inject money, we can consider two other ways to affect credit markets. first we can buy financial instruments outright. if particular markets have become dysfunctional so that general monetary expansion doesn ’ t help, relatively small amounts of direct purchases may unblock the relevant markets. second we can lend liquid assets – including cash – against assets that are, or have become illiquid. that is what we did with the special liquidity scheme and more recently the funding for lending scheme. in 2009 the bank launched two schemes making outright purchases of assets other than gilts. 10 we started to buy sterling commercial paper ( up to 3 months maturity ) and investment grade corporate bonds. at that time, in the worst conditions of the recession, the markets for these financial instruments had not been functioning normally. an increased demand for liquidity and heightened concerns about counterparty risk, caused many markets to dry up and asset prices to fall. by intervening as “ market maker of last resort ” the bank was able, over about a 12 – 18 month period, to support the markets for both commercial paper and corporate bonds and drive prices back to more appropriate levels. the commercial paper scheme came to a natural end as prices rose and our holdings – which peaked at about £2. 4bn in 2009 – matured. the corporate bond scheme is still in operation. each week we offer to buy from