The Bank of England should consider buying more assets other than government bonds as part of a wide-ranging programme to revamp Britain's banking infrastructure, Bank policymaker Adam Posen said on Thursday.
Posen, in a presentation at the Trades Union Congress in London, said that more needed to be done to boost loans to smaller businesses, including standardising loan applications, sharing credit rating data and developing a junk bond market.
In terms of the empirical claim that it's a credit demand problem rather than a credit supply problem, you can never prove this. But there is very strong circumstantial evidence that this is a supply problem, he said.
Most economists expect the Bank to approve another 50 billion pounds of asset purchases at next week's Monetary Policy Committee meeting, but purchases of assets other than gilts appear to be off the agenda.
At the start of its quantitative easing programme in 2009, the Bank did buy some corporate bonds and commercial paper, but the small size of these markets meant purchases of those assets totalled only a small fraction of the nearly 275 billion pounds of gilts bought.
Posen said that proposals, which he backed, to improve the financial infrastructure for smaller businesses had lost momentum over recent months.
There is too much of a fear of a public role in creating financial infrastructure, he said. It would not be the end of the world if the MPC were, as part of the asset purchases, to buy things other than gilts to this end.
(Reporting by David Milliken)