By Jason Douglas
LONDON--The Bank of England should purchase bundles of small business
loans in an effort to boost the supply of credit and end an
"investors' strike" that is holding back the economy, BOE rate-setter
Adam Posen said Monday.
In a reprise of an earlier appeal, Posen said major central banks
around the world should engage in a fresh round of stimulus and target
their efforts at parts of their economies most in need of official
help.
In the U.S., that is the residential mortgage market. In the U.K., it
is lending to small businesses, Mr. Posen said, according to a text of
his speech.
"The critical gap to be addressed is in lending to small and medium
enterprises, and new businesses," he said.
Mr. Posen said risk-aversion among investors is preventing the extra
cash pumped into the U.K. economy by the BOE through its asset
purchase program from sparking a revival in investment--an investors'
strike that monetary policy should seek to bring to an end.
His proposal calls for the BOE to buy small business loans, thereby
spurring banks to lend more to small firms in the knowledge the
central bank stands ready to snap up those loans.
Mr. Posen first made his proposal in September last year but the idea
met resistance from BOE Governor Mervyn King, who argues that only
elected lawmakers can risk taxpayers' money on risky loans. The BOE's
GBP325 billion asset purchase program has focused almost exclusively
on U.K. government bonds, or gilts.
Mr. Posen, who steps down from the Monetary Policy Committee in August
to head the Petersen Institute in Washington, a think tank, said those
concerns should be assuaged if the government vowed to indemnify the
central bank against any losses.
Write to Jason Douglas at jason.douglas@dowjones.com
(END) Dow Jones Newswires
June 11, 2012 11:03 ET (15:03 GMT)
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