< p>Regular readers of this column will know I have been a Funding for Lending Scheme (FLS) sceptic from the outset. Launched to much acclaim in August 2012, the scheme had the noble objective of increasing lending to businesses and individuals by making available to the banks up to £80 billion in fresh liquidity. The pill was further sweetened with a heavily discounted interest rate for taking the money.

Figures released yesterday suggest, at best, that FLS has got off to a stuttering start and, at worst, that it’s going to turn out to be just another sticking-plaster solution to a problem requiring more radical financial surgery.

In the final quarter of 2012, according to the Bank of England, net lending to individuals and businesses declined by a massive £2.4 billion compared to net lending in the previous quarter – this despite the fact the banks have taken up £14 billion of funding from FLS since its inception.

In fairness, the lending performance across the main banks was markedly different with Lloyds Bank being the worst offender, and Barclays (the nation’s current favourite pantomime villain) and Nationwide Building Society among the best. The mortgage sector also gained more than the business community.

In a statement, the BoE said reduced bank lending is “…consistent with the continued adjustment of business models in the wake of the financial crisis.” The Old Lady also observed that it “takes time” for reduced lending costs to “feed through” given the “typical lags involved in the loan approval process.” Try explaining that to nimble, fleet-of-foot bridging lenders!

As if to add salt to the wounds, the bankers’ own trade association – the Libor scandal-bedeviled BBA – revealed in its own report that bank lending to four million SMEs fell by £380 million in the last three months of 2012. Analysts said it was because small and medium size businesses “don’t want to borrow.”

Despite the evidence, advocates of FLS insist it will come good. We need another two to three years, they argue, saying such vast amounts of money cannot possibly move that quickly. Maybe, but how many businesses have the luxury of two to three years? And why is it that the banks were able to dole out truck loads of dosh in super-quick time just a few years ago but now appear to be struggling under the insurmountable demands of the ‘loan approval’ process?

We know why: they’ve lost their lending mojo and they don’t know where to look for it. That may provide some comfort to those of us looking at bridging as a long term opportunity, but it isn’t good for the prospects of the wider economy.

Bridging may be highly flexible but it isn’t suitable for the majority of business borrowing needs. It’s too expensive and too short term for that. So while we will gain in certain areas, bridging cannot pick up all the slack – or even a large part of it – left by the banks’ craven withdrawal. Other solutions need to be found.

A BoE Deputy Governor has already let slip the Bank is considering ‘negative’ interest rates. This would see the commercial banks being charged for depositing cash with Threadneedle Street, and so, the logic goes, encouraging them to lend it to SMEs and the like rather than pay a premium.

Nice idea, but when the Swiss Central Bank introduced something similar a couple of years ago (in this case, to reduce the pressure on a soaring Swiss Franc that was damaging exports) it made no difference at all. Banks, and other big institutional savers, were shown to be prepared to pay the premium in return for the safety of their deposits.

I’m the first to acknowledge there are no silver bullets to solve the lending problem. But a good start would be for the banks to be more honest and open about their positions. We’re not idiots, and most people can understand a reasonable case for not lending if put to them properly. Instead we have the disgraceful spectacle of banks pushing SMEs to convert much-needed, flexible overdrafts into inflexible loans simply as a way of boosting their lending figures.

Will they ever learn…?