Under questioning on the impact of the scheme at the Treasury Committee this morning, Bailey noted that cheaper borrowing rates for banks had lessened competition among bank savings rates. 

“What the introduction of the FLS scheme has already shown us is that competition for deposits has eased off quite a bit and that has been reflected in the rates paid on deposits,” he said.

“Are we seeing the same sort of adjustment on the lending side of the balance sheet? My answer to that would be that it has not taken place yet to the same extent – the jury is still out on whether we have seen as much adjustment as we ought to see.”

The Committee also questioned Sir Mervyn King about the powers of the newly-created Financial Policy Committee along with other executive directors and members of the FPC.

King highlighted the FPC’s independence to carry out its risk-reducing measures.

He justified the decision to exclude a cap on loan-to-value ratios, commenting: “Having a regulation which says to someone you cannot borrow a certain amount which is independent of our assessment of their credit worthiness is quite a strong statement to make.”