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By Jason Douglas
The Bank of England could use its asset purchase program to support lending to small businesses, Bank of England policy maker Adam Posen said Thursday.
Posen, a member of the central bank's rate-setting Monetary Policy Committee, told a seminar on banking reform organized by the U.K. Trades Union Congress that the U.K. must "deepen and diversify" its financial infrastructure to support economic growth and the central bank could play a role in easing tight credit conditions by buying assets like corporate bonds.
"You can do monetary policy on things other than sovereign debt. You can do open market operations on things other than sovereign debt," Posen said. The MPC's asset purchase facility has focused almost entirely on U.K. government bonds, or gilts. The central bank has bought and sold some corporate bonds and other assets but with the aim of ensuring financial markets are functioning smoothly, not to ease credit conditions.
"It would not be the end of the world were the MPC to buy things other than gilts," Posen said.
Posen was talking in a personal capacity and his views don't necessarily represent those of the MPC, nor do his remarks suggest the central bank is poised to expand its asset purchase program beyond government bonds. Indeed, BOE Governor Mervyn King is opposed to such action, believing such interventions are better left to fiscal authorities.
Posen said U.K. policy makers can do more to boost the supply of credit to small and midsize firms starved of loans. In an attempt to address the scarcity of credit that is hindering companies' ability to expand and hire staff, Chancellor of the Exchequer George Osborne in November said the government would undertake a type of stimulus known as credit easing in order to channel billions of pounds to small businesses. The policy involves providing government guarantees to small business loans.
Posen said policy makers should also consider setting up a state-owned institution to package bundles of small business loans and sell them to investors. Other actions that would help ease the supply of credit could include standardizing loan applications and opening corporate bond markets to small firms, he said.
-By Jason Douglas, Dow Jones Newswires; 44-20-7842-9272; firstname.lastname@example.org
(Ainsley Thomson contributed to this article.)