Five of the UK's six largest lenders have joined the Bank of England's (BoE's) Funding for Lending Scheme (FLS) designed to increase lending to households and businesses.
The take up of the scheme means that participating banks have the potential to provide a £60 billion boost to lending - calculations from the Financial Times have shown - falling short of the £80 billion target set in the spring.
A total of 13 banks and building societies have so far signed up to the scheme, representing 73 per cent of the lending market and around £1.3 trillion of lending.
Speaking at a conference, Paul Fisher, the BoE's executive director for markets and member of the Monetary Policy Committee, said that a 'significant number' of other institutions were close to signing up and that he was 'confident the FLS will help the supply of credit.'
Launched in August, the FLS allows banks to borrow up to five per cent of their current loan stock at cheaper rates than other financial institutions.
It creates strong incentives for banks to boost lending as every pound it lends out also increases the amount that it can borrow in the Scheme by a pound.
However, Fisher warned: "We cannot expect every bank in the FLS to increase its stock of lending to the real economy over the 18-month [drawdown] period ... the crucial impact will be whether the FLS enables them to lend more than they would have done in its absence."
Business groups remain sceptical that the scheme is reducing lending rates for smaller companies that require access to finance the most.
Speaking to the Financial Times last week, the Forum of Private Business's senior policy advisor Alex Jackman said that benefits from the scheme may be being clawed back elsewhere.
"It has taken a number of government programmes to induce lower rates and even with those programmes some banks are now beginning to charge for business banking," he said.
Paul Fisher's announcement of the progress of the Funding for Lending Scheme comes days after the Government unveiled further plans for a new state-backed business bank, which claimed it could support up to £10 billion in new lending to businesses.