Anthony Hilton: Banking initiative that's starting to look smart

Lunch on Thursday with Paul Fisher, director of markets and a member of the Bank of England Monetary Policy Committee, was made more cheerful by an announcement the previous day from the Royal Bank of Scotland.

It said the bank was expanding the volume and cutting the cost of loans to business in response to the Funding for Lending initiative – a policy developed by Fisher himself over much of the last year and officially announced by Governor Sir Mervyn King just a few weeks ago. RBS said last week that it was cutting mortgage rates in response to the policy initiative.

The clever part of the policy is that it is very difficult for the banks to ignore it even if , like HSBC, they would have preferred to. This is because sourcing funds from the Bank of England allows the high street banks to make cheaper loans to their customers than they otherwise could.

If they don't make such loans, someone else will because the full benefits from the scheme only come through to an individual bank when its volume of loans increases. Banks who participate get a competitive edge; those who do not risk losing market share.

The more one understands its effect on bank behaviour, the smarter the scheme seems to be, and such a rapid positive response from a major bank is hugely encouraging. Getting lending flowing again is crucial to reviving the economy. It is too early to say the Bank has cracked it, but there are signs of movement in the right direction.

Watchdog with more than a whiff of Whitehall

On balance, I am a fan of the Financial Reporting Council. But I was amused by the announcement on Tuesday of the appointment of Mridul Hegde as a director of strategy.

One of the FRC's campaigns is to stress the importance of boardroom diversity and how companies must work hard to get the right balance of skills, experience, independence and knowledge among directors.

The FRC is chaired by Sarah Hogg, who headed Prime Minister John Major's policy unit. The chief executive is Stephen Haddrill, who was a senior civil servant in what was then the Department for Trade and Industry, now the BIS. Ms Hedge comes from (ahem) the Treasury.

That's diversity for you.