Comms Comments

12/07/2010

	The BBA's communications team sheds light where it can on the profusion of press and broadcast stories about banks and banking.

BBA Contact: Lesley McLeod, Brian Mairs & Brian Capon

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Six minutes of terror on Mars - and what it means for banking

12/07/2010

BM writes: It was the six minutes at the end of NASA's Mars Explorer mission which were the most anxious for Mission Control. The nine months of interplanetary travel from Earth had passed smoothly, but the six minutes which preceded touchdown on Mars required a series of procedures to decelerate the probe from twice the speed of a bullet to a comparatively gentle descent onto the surface.

Therefore it was on those six minutes that Gentry Lee, NASA's chief systems engineer, concentrated his risk mitigation strategy. In space exploration, small errors can end up in big failures, so at the planning stage Lee set about logging everything that could go wrong, and then set a plan to deal with it.

The NASA approach was one advocated to senior risk officers at the British Bankers' Association the other day, as Prof Anette Mikes of Harvard Business School showed how risk planning in a very different sphere held lessons for the world's banks.

Prof Mikes explained to the delegates at the BBA conference centre that, as chief systems engineer, Gentry Lee was effectively NASA's chief risk officer for Mars Explorer. He had identified three different types of risk:

business as usual risks - those engineering and physical challenges the team already know about, managed and mitigated;
development risks - the new technologies and applications to be used on the mission which had been untried; and
"unknown unknowns" - those eventualities which, without a lot of imagination, would be unforeseen.

Prof Mikes explained that the same model, slightly adapted, could apply to the business of finance. But crucial to all of this would be the adoption of a new mindset among staff: the expectation that every new idea would need to be explained and justified exhaustively, and effectively tested to destruction - and at a senior level.

This last point is crucial: to be able to enforce the essential cultural changes on an organisation, risk monitoring needs to be carried out at every level of the organisation, and the chief risk officer needs to sit close to the top.

Since long before the credit crunch, the BBA has been looking at new ways to think about risk, drawing on experiences from other fields, academic research and many other resources to find new and better approaches to meeting the challenges of today's financial markets. Understanding and managing risk is the essential defence against another financial crisis, and the debate on how such risks can be properly anticipated, assessed and managed is one of the absolutely key elements of banking reform.

And, as Prof Mikes says with a smirk, it's not rocket science.

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Another 10-point plan, another fisking

29/06/2010

Most of the achieveable goals of the Financial Services Consumer Panel's new 10-point plan for banking (at http://www.fs-cp.org.uk/publications/pdf/10point_plan.pdf) have already been addressed.

A line-by-line analysis of the Consumer Panel's report shows that all are already being addressed by the banks and their regulators: some have already been adopted; others have been considered and discarded as impractical. And crucially, no recognition is given to the cultural change currently under way in the banking system to promote fairness and transparency.

We all agree that customers deserve good value and good service - and that is why we are already a long way down the road to change in the key areas highlighted by the Consumer Panel.

The banks have been at the table for change since before the financial crisis took hold, and the UK's banks have moved further and faster than any other country to restore the economy, to pay back the taxpayer and to restore trust in the industry through banking reform. But none of this is reflected in the Consumer Panel's report, nor is any credit given to the banking industry for working constructively with groups such as theirs and for achieving positive change.

So again we have fisked the 10 points to se what we have done already and what we are currently doing. The 10 points, and our comments, follow below.

1. Straightforward products which "do what they say on the tin"

Widely available simple, safe, comparable products that offer value for money;
Good product innovation and effective distribution providing real choice and competition for everyone.

We support simple products. Our members offer basic bank accounts, which offer customers the simplest, safest financial access of any bank account in any country. The challenge is to create simple, safe products which provide competitive returns. Safer, "risk-free" products self-evidently will produce lower returns. The current deposit guarantee safeguards 96 per cent of customer deposits: when the limit increases to 100,000 at the end of this year, 99 per cent of customers will be fully protected.

2. Treat customers fairly

Recognise and respond reasonably to the needs of all consumers including vulnerable consumers, be this through age, location, ability, or gender etc;
Transparent and proportionate pricing and charges clearly explained and notified to consumers in advance;
An end to complex product innovation that obscures risk and to practices designed to lure in consumers or make it difficult to compare products and their true costs;
Customers experiencing financial difficulty should be treated helpfully and sympathetically.

Transparent pricing is well under way, though not yet in place: the banks are working with the Office of Fair Trading using comparative case studies to determine the best way to provide transparency and comparability on the costs of current accounts. Banks disclose information on interests rates through the use of summary boxes (mandated in the Banking Code and now required by the FSA), plus key facts illustrations for mortgages and policy summaries for insurance

We already provide a commitment in the Lending Code to treat customers in financial difficulties sympathetically and positively. In addition, the Lending Standards Board has issued additional guidance to Lending Code subscribers regarding the application of interest and charges to debts and to consider the customer's financial circumstances.

And the industry has longstanding processes and procedures in place to deal with different types of customers, particularly the vulnerable, from bereaved, disabled and elderly people to those who lack the capacity to make their own decisions.

3. Relevant and unbiased advice

Advisers should act as true agents of their customers providing them with independent advice uncompromised by sales, product or provider bias;
High professional standards for advisers and ongoing professional development designed to guarantee good quality, relevant advice;
Simpler advice structures designed to direct consumers towards getting appropriate advice and products. There is a role here for decision trees or computer supported tests that could aid and simplify the consumer experience;
Successful implementation of Consumer Finance Education Body and its impartial guidance service.

The FSA's retail distribution review is already addressing issues in the financial advice market. In the banking industry, customer-facing staff go through internal training and competency programmes, while those in regulated roles satisfy the regulatory requirements for provision of, say, mortgage or investment advice. When the FSA's Retail Distribution Review is fully implemented, all investment advisers must provide a "cash-equivalent disclosure" of the cost of advice, or must charge a straightforward fee.

Investment advisers are already required to obtain the Level 3 Certificate in Financial Planning (CFP) qualification or an equivalent Level 3 qualification: when the measures proposed under the FSA's Retail Distribution Review are implemented, only Level 4 qualifications will be sufficient.

4. Responsible lending in the mortgage market

A mortgage market which lends responsibly to customers;
Products which can be easily compared and where the total cost is easily understood;
Tailored, individual solutions to managing mortgage arrears;
A sensible approach to verifying income for the self-employed with lenders being flexible and intelligent about the form that independent verification of income can take.

Analysis by the money advice sector shows that the overwhelming majority of repayment problems follow unemployment and other life-changing events, rather than by irresponsible lending. Banks are being very flexible about managing mortgage arrears - an approach which has led to a significant reduction in repossessions. Banks' approaches to borrowers in difficulties can range from informal arrangements, such as switching to interest only or extending the term to providing payment holidays, to more formal measures to ensure repossession is a last resort (such as the mortgage arrears pre-action protocol). There are also government initiatives such as support for mortgage interest, the homeowner mortgage support scheme and the mortgage rescue scheme.

5. Better Banking

Effective competition that helps drive down costs and offers real choice;
Customer service driven by customer needs;
Improved transparency over costs and charges to make it easier to compare costs between banks;
Unique transferable account numbers attached to the individual, like mobile telephone numbers
An end to sales incentives that drive questionable behaviours;
Proportionate charges for unauthorised overdrafts and fair treatment in the use of set-off;
Easier access to interest rate information;
Basic bank accounts which offer internet access.

Earlier this year the Office of Fair Trading reported on competition in the personal current account market and it concluded competition was working. Now the banks are working with the Office of Fair Trading using comparative case studies to determine the best way to provide transparency and comparability on the costs of current accounts. Banks disclose information on interests rates through the use of summary boxes (mandated in the Banking Code and now required by the FSA), plus key facts illustrations for mortgages and policy summaries for insurance

Current account switching already takes place within 10 working days: it is an industry commitment. But portable account numbers have been dismissed at EU level, as a Europe-wide review of current accounts found them to be too costly to be practicable.

6. Dependable later life products

Simple, reliable and comparable saving and retirement products which are easier for customers to understand and use;
Better support for Open Market Options when annuitising;
Equal compensation cover for trustee based and insured SIPP accounts;
Extension of temporary high balance protection to SIPP and other personal pension savings;
Stronger action to protect the interests of "With-Profits" policy holders.

This is not a bank-specific issue, but is a matter for the whole financial services industry. Other trade associations representing long-term savings and retirement products would be better placed to comment.

7. Intelligent regulation

Clear, joined-up and enforceable rules focused on the firms' approaches to dealing with customers and measurable outcomes;
One stop regulation e.g. consumer credit should be regulated by the FSA for firms regulated by the FSA;
The correct balance between prudential regulation (keeping money safe) versus conduct regulation (making customer relationship practices safe);
Proactive market and firm monitoring to identify and mitigate risks at an early stage;
Effective product scrutiny to identify problems before they escalate.

We agree on the need for regulatory clarity, and on retail banking would suggest alternative bullet points:

Regulators should ensure greater regulatory stability in retail banking through;

A single lead regulator should supervise retail banking.
Secure, agreed minimum standards should be set for banks' retail activities.
The Lending Code and associated industry guidance should have a much more secure status, ideally as "regulator-approved".
There should be a framework for a closer working relationship - particularly between the FSA, OFT and the Financial Ombudsman Service (FOS) - for clarifying, interpreting and agreeing the standards required to meet important principles such as fairness to customers, including consumer collective redress to deal with mass complaints.
And the FOS should revert to its dispute resolution role, judging complaints against the standards at the time the product was sold or the service provided (in other words minimising the retrospection that is increasingly resulting in uncertainty and constraining innovation).

8. Make firms play by the rules

Credible deterrence against non-compliance so that firms fear the reputational and financial risk;
Greater supervisory challenge;
Senior management held to account for the activities of staff;
Naming, faming and shaming firms to drive up standards;
Greater transparency with regard to enforcement information so that customers can take action themselves against sharp practices.

All of these issues have been addressed, or are being addressed, by the regulators.

9. Effective redress

Ensure firms understand their regulatory obligations to handle complaints fairly;
Efficient complaint resolution by firms and effective cooperation with the regulator and Financial Ombudsman Service to resolve systematic complaints quickly;

All complaints are resolved in line with the regulatory requirements and are reported to the FSA. The FOS publishes firm-specific complaints data, and from August all banks will be required to publish their complaints data on their websites. Many will be providing contextualisations and explanations to accompany the data.

Banks pay the same case fee to the Financial Ombudsman Service (FOS) whatever the outcome of the complaint, so it is in the banks' interest to reduce unnecessary referrals to FOS by dealing with the complaint fairly.

10 Timely and appropriate compensation

Clear and easy to understand limits and levels of compensation;
Higher compensation limits;
Separate authorisation of each retail brand would give customers greater clarity and certainty as to the risk they are running;
Timely compensation by firms, facilitated by adequate record keeping

Since the run started on Northern Rock, it has been the case unquestionably that the public has enjoyed a greater understanding of the extent of protections on deposits. The Financial Services Compensation Scheme (FSCS) is strengthening this with a consumer awareness campaign, funded by the industry.

Since the start of this year, banks have been following new guidelines from the FSCS on informing their customers of their protections. The BBA has been contributing to this work.

And communications to consumers are being undertaken in a balanced way which raises awareness without causing undue concern. No depositor with a UK bank lost any money from their accounts at any point in the financial crisis. On top of this, the industry has undertaken a massive programme of banking reform in the past two years specifically to ensure a bank failure should not happen again.

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We're fisking Which

25/06/2010

We at the BBA largely enjoy a good relationship with Which, by which we mean they respect our position as a trade association for the banks and we respect them as a membership body representing consumers.

But there are times when we do have to pull them up publicly, and draw attention to the errors of their assertions.

The July issue of Which Money carries the Which Banking Manifesto, a set of 10 points they want to see implemented "that will see good customer service put ahead of the pursuit of short-term profit."

Good. That's why we have achieved - or are in the process of achieving - most of the points they raise.

Therefore we have taken the slightly unusual step of fisking the Which Banking Manifesto, point by point, and present our conclusions below.

Please do not presume that in taking this action we have anything but the highest concern for customers who have a genuine grievance against their bank. Every customer complaint is the failure of a relationship, and the industry takes these very seriously indeed. We believe it is a measure of our seriousness that the industry has already addressed most of Which's points.

1. Sales incentives and commissions for bank staff which incentivise mis-selling should be banned. Instead, branch and call centre staff should be rewarded for providing high-quality service. All customer-facing bank staff must be suitably qualified. All advice on investment products must be provided by advisers who are qualified to at least CFP level.

This is largely the position of the industry at the moment, with customer-facing staff going through internal training and competency programmes, while those in regulated roles satisfy the regulatory requirements for provision of, say, mortgage or investment advice. By the end of this year, all investment advisers must provide a "cash-equivalent disclosure" of the cost of advice, or must charge a straightforward fee.

2. All bank charges and fees must be fair, transparent and proportionate to the costs incurred in providing the service. Banks should not use charges and fees to disguise the true cost of a deal. The industry should develop measures of total cost, which include all fees and charges, so that consumers can easily compare the cost of products.

This is well under way, though not yet in place: the banks are working with the Office of Fair Trading using comparative case studies to determine the best way to provide transparency and comparability on the costs of current accounts. Banks disclose information on interests rates through the use of summary boxes (mandated in the Banking Code and now required by the FSA), plus key facts illustrations for mortgages and policy summaries for insurance

3. Remove all barriers to switching financial products. In the current account market, banks should work towards offering portable account numbers, allowing customers to switch accounts without having to transfer direct debits and standing orders. In the ISA market, transfers should be completed within 10 working days.

Current account switching already takes place within 10 working days: it is an industry commitment. Portable account numbers have been dismissed at EU level, as a Europe-wide review of current accounts found them to be too costly to be practicable. And in the ISA market, we share the goal of swifter transfers. However as money in an ISA receives special tax treatment, banks are required to report all transfers to HM Revenue and Customs, and be prepared to provide a full paper trail. Transfer speeds have picked up considerably in recent years, and we are confident that most transfers will be handled swiftly in the next ISA season.

4. Customers should be allowed to opt in' to unauthorised overdrafts. Those who do have overdrafts should not be overcharged. Banks should provide support for those who manage their finances poorly, and should not exploit them. Any bank charges added to an account should not contribute to a customer's financial instability.

Some providers already offer an opt-in only to unarranged overdrafts. In fact, all banks which offer basic bank accounts effectively do this for those customers, as overdrafts are not permitted on these accounts. This autumn the Lending Standards Board and the OFT will report on their progress with the banks in developing an industry-wide opt-out for unarranged overdrafts.

But the primary focus is on communication: it is essential that customers get the help and advice they need to manage their accounts, with regular reminders of services and costs as well as clear, comprehensive information when the account is opened. And in the last revision of the Banking Code the banks undertook to contact customers they perceived to be headed for financial difficulties: this commitment survives under the new regulatory regime and remains a strong means to keep customers out of financial difficulties.

In addition, the Lending Standards Board has issued additional guidance on applying interest and charges to debts and considering the customer's financial circumstances when applying the right of set off for customers in financial difficulty.

5. Existing customers should be given the same access to products as new customers. Banks should not be allowed to offer more favourable terms to new mortgage or savings customers, for example, while preventing existing customers from taking advantage of these better deals, potentially leaving them trapped on poorer terms.

Banks reserve the right to offer different products at more competitive rates, to reflect developments in the market or simply to attract new money. But banks must inform customers of any adverse rate changes and bonus expiry dates to enable them to shop around for better deals.

6. Bank staff must clearly state whether the products they are selling are covered by the Financial Services Compensation Scheme (FSCS) and this information must be provided in writing to the customer. Banks must also inform customers of the risk of having a savings balance which is close to, or above, the limit of the FSCS.

Since the start of this year, banks have been following new guidelines from the FSCS on informing their customers of their protections. The BBA has been contributing to this work.

And communications to consumers are being undertaken in a balanced way which raises awareness without causing undue concern. No depositor with a UK bank lost any money from their accounts at any point in the financial crisis. We understand why Which states it is risky to have a savings balance above the FSCS compensation limit, but such a bland assertion fails to recognise the massive programme of banking reform undertaken in the past two years specifically to ensure a bank failure should not happen again.

7. Banks should offer a new breed of 100 per cent guaranteed accounts. The money would be invested in UK government bonds and the like, and would be ring-fenced from a bank's other activities, so no money in these accounts could be at risk in the event of a bank failure. Higher paying accounts would be available, but subject only to FSCS protection levels

We support simple products, but question what "risk free" might look like. The current FSCS limit safeguards 96 per cent of customer deposits: when the limit increases to 100 at the end of this year, 99 per cent of customers will be fully protected.

If Which intends that these risk free accounts be 100 per cent supported by banks' capital and liquidity reserves, that obviously impacts on banks' ability to lend money to homeowners and businesses.

And zero risk in economic terms means zero reward: would there be any appetite for this, when buying government bonds would produce an equally safe result but with a return?

8. Banks should continue to provide and process cheques for all consumers until there are viable alternatives in place. Banks must also not penalise customers who wish to continue transacting via branches, and must not exclude those customers who are unable or unwilling to conduct their banking online

This has never been argued: the goal of the Payments Council is to ensure that by 2018 there is no scenario where customers, individuals or businesses, still need to use a cheque. The Payments Council has voiced particular concern for elderly and vulnerable people. There are instances where banks and building societies have advised customers that small transactions over counters are no longer permitted, but these are individual commercial decisions and not sector-wide policies.

We must note that while Which calls for clear, fair and proportionate charges elsewhere, it is advocating cross-subsidisation here: customers using (inexpensive) phone and online banking services must subsidise those using (expensive) branches.

9. Banks should resolve all complaints in a fair and timely manner. Banks should publish a detailed annual breakdown of complaints, broken down by brand and product area, and should provide detailed explanations in areas where complaints volumes are significant. There should be no incentivisation for bank staff to reject complaints.

There is no incentivisation for bank staff to reject complaints. Complaint handlers are paid for resolving complaints satisfactorily and in a timely manner, not for rejecting them. Banks pay the same case fee to the Financial Ombudsman Service (FOS) whatever the outcome of the complaint, so it is in the banks' interest to reduce unnecessary referrals to FOS by dealing with the complaint fairly. Complaints are resolved in line with the regulatory requirements and are reported to the Financial Services Authority (FSA). The FOS publishes firm-specific complaints data, and from August all banks will be required to publish their complaints data on their websites. Many will be providing contextualisations and explanations to accompany the data.

10. Bank management should have longer-term incentives built into their remuneration packages. All senior retail banking executives should also have their pay linked to overall levels of customer satisfaction, complaints levels and regulatory compliance - to help create a more customer-focused industry.

The FSA's code of conduct on remuneration, issued last August, requires pay packages to contain longer term incentives. Senior retail banking executives are paid according to a number of factors, which measure quality of service and customer retention.

And of course banking is a customer focused industry. Without customers, there are no banks. Banks operate 150 million accounts for individuals in the UK yet independent surveys show the overwhelming majority of customers are perfectly satisfied with the service they receive. Banks have invested heavily in systems and services to protect the free-in-credit banking model and to enable customers to manage their finances confidently and efficiently. They have invested in account switching mechanisms so that if a relationship does break down, the customer can move to another provider within 10 days.

It is an inconvenient truth for Which that many of its criticisms have already been addressed and are no longer valid, while others are at the forefront of the cultural change currently under way in the banking system - a change which is hindered rather than helped by their failure to record or recognise what is already being achieved.

The Which Banking Manifesto is not the work of the Future of Banking Commission, and does not build on the valuable work undertaken elsewhere to foster dialogue between banks and their customers on the future of banking. The UK banking industry is far from perfect. We take comfort in the fact that consumer organisations can occasionally be fallible too.

Which banking manifesto at http://www.which.co.uk/documents/pdf/the-which-banking-manifesto-217594.pdf.

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Analysing the complaint statistics

19/05/2010

BM writes: As always the Financial Ombudsman Service annual review contains masses of valuable intelligence about the nature of complaints from unhappy customers.

The numbers are certainly large. The Ombudsman received 925,095 initial enquiries and complaints last year. One in six of these - 163,212 in total - resulted in new cases. Banking and credit accounted for 44 per cent of these new cases - that's 71,700. And of the banking cases resolved last year, 52 per cent found in favour of the customer.

Now, banking is an industry of big numbers. Banks manage more than 150 million personal accounts. Every ten minutes almost 50,000 people use ATM machines, while more than 40,000 will be banking online.

But beyond the figures, the review identifies some important trends. For instance, there were more than 25,000 complaints about current accounts, and a growing number of these came from bank customers whose problems related to financial hardship. The Ombudsman cites the Supreme Court ruling on unarranged overdrafts as one of the reasons for this growth in complaints, but it is clear there are many other issues which the industry needs to address.

Therefore the BBA is taking action, working with the regulatory authorities to better understand the cause of this rise in complaints and to resolve the issues. The BBA has already hosted the first of a series of seminars bringing together senior industry figures to discuss the issue and share best practice.

We are also working harder at ensuring people in financial difficulties get the help they need. For instance, we'll be announcing shortly an initiative to make Common Financial Statements more widely used and understood. These are the standard forms we developed with advice agencies to help people in financial difficulties to manage their budgets and repay what they can of their debts.

Nobody wants to complain. And banks recognise that every complaint represents a break in communication somewhere along the line. Today's review by the Ombudsman shows there is still a great deal of work to be done.

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Good news for small businesses?

13/05/2010

BM writes: You could be excused for missing the statistics we issued earlier this week on bank lending to small business. It didn't earn much coverage - people seemed to be focused on other things, incredibly - but we think they bear repeating.

We think they offer reason for guarded optimism: new lending to businesses has reached its highest level since last July - £678 million - relecting an increase in demand for fixed term loans. Spring usually sees increased business activity and the bad weather may have pushed some borrowing intentions from February into March but nevertheless more bank finance was made available. The total amount on loan to small businesses at the moment (including overdrafts) stands at around £55 billion.

The general trends we are seeing include a reduction in overdraft borrowing and an increase in deposits: put simply, it appears that businesses are reducing their overheads by paying off loans rather than taking out new ones. However, recent Bank of England data suggest that three-quarters of all finance applied for is being approved.

There also appears to be good news in the numbers of small businesses establishing new relationships with banks - 10 per cent is accounted for by businesses that have changed their banks, but the rest is roughly analogous to the number of business start-ups, so this is a key indicator. Since we started this statistical series at the end of 2008, the number of new banking relationships has held steady at around 40,000 a month: in March it shot up to 58,000.

The most important message from all this is that banks are willing to lend to small businesses and as Stephen Pegge, the chair of our Small Business Panel, said at a recent conference, banks see this as one of their key roles in society. But in order to lend, they need to see a sound business plan which also sets out what will happen if the investment does not bring the expected results. The money that banks lend to business is largely money which has been deposited by that bank's customers: it is absolutely key to any lending agreement that it will be paid back.

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Sisters in the City

22/03/2010

LM writes: Now, anyone who knows me knows I'm not what you'd call a 'girly-girl' so maybe I'm not the best person to speak about this but, Sisters - why do you think the City isn't female friendly?

I've worked in a number of industries - and spent a large part of my career in Whitehall - and the City is much more welcoming than any of them. Nor is it so bitchy. But, somehow we've got it into our heads that it's a boys' club and we won't get in or get on. Worse, this idea seems to take root before ever a careers' guidance teacher has handed over a leaflet and, frequently, before girls even get their first debit card.

I think a combination of things is going on.

There is a general fear of numbers: my seriously intelligent, and otherwise highly evolved, friend goes weak at the knees if anyone asks her to add up and fractions make her faint. But that's just conditioning and anyone who can work out her share of pizza, wine and a night at the pictures can cope with maths - you just think you can't and have wimped out of trying.

Others have an image of banking that went out with re-runs of Dad's Army, where it was all ledgers, short back and sides and men that looked like Gilbert and George. Even my Dad - who worked in banking for 43 years, wasn't that bad. I've a friend who works in government and he is fascinated by how much more stylish things are in the City.

And banking is not all Wall Street, despite the blokes you might have met in the student bar with IQs - or boyfriend potential - in inverse proportion to their decibel output. Don't be put off banking becasue of a few wannabe traders. Women do well in fund management roles and trading is a game that very few - men included - want to do. Even those who don't mind the hours and the lack of sleep don't want to stick at it for ever.

Banking is not all bad behaviour and bean-counting. It's a people business where even the front line jobs depend on judgments of character and probity. Customer satisfaction is also intimately linked to the simple expedient of having someone with good interpersonal skills behind the counter. And many of the specialists jobs - from legal and marketing to IT and PR - are hardly what you'd call gender specific.

That's not to say it's easy. Banking is a tough business and, like any other demanding career, you have to put the work in to get on. But it's no different from law or accountancy or medicine or architecture or PR in that respect. And I've found no glass ceiling. Certainly, here at the BBA it's not an issue as both the big boss and her deputy are women. And round the board tables there are increasing numbers of women: Deanna Oppenheimer at Barclays, Helen Weir at Lloyds, and Lynne Peacock at Clydesdale and Yorkshire to name just a few off the top of my head.

And, like most big employers, banks operate family-flexible working arrangements [at the BBA they're mostly taken up by the men] and they take their commitments to training and staff development seriously. So, while it may not be big bucks in terms of the general run of salaries, staff are well looked after and there is ample scope to get on.

So, don't write it off till you've tried it and at least give banking a look before deciding it's not for you.

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What we learned at the Lough side

12/03/2010

BM writes: On Wednesday I was in a café in Belfast, seeking out some local knowledge from old friends in advance of my appearance at a business lunch in Enniskillen.

"Wear a red suit," says Richard, "so when they throw tomatoes it won't show."

But I needn't have worried. There seems to be a lot more understanding than I had expected between the business community and the banks that serve them. The business people I spoke to are far more concerned about the administrative burden of regulatory and tax affairs and the obstinacy of some of their late payers. They accept and agree that their banks can and do lend money to businesses which have a plan to weather the downturn and to build on economic recovery.

Instead of anger, what I found was concern about what was going to come next - not the fears of a double-dip recession which are currently engaging the economists but concerns about the next thing to impact on their cashflow, whatever that might be. Would Northern Ireland's public sector shrink as the Government seeks to relieve the debt burden? Would NAMA - Ireland's National Asset Management Agency - succeed in drawing a line under the losses incurred north of the border on land purchases during the property boom? Would the pound weaken further against the euro or regain its strength?

We had the answers to precisely none of these questions. But we did have an enormously constructive session discussing how businesses can forge relationships with their banks which will help them to weather whatever comes next and to prepare for recovery.

So congratulations are due to the Institute of Directors in Northern Ireland, which held the event as part of Enniskillen's Money Week. The week-long programme of events was a joint venture by Northern Ireland's Consumer Council and the Financial Services Authority.

And one last thing. If you have never been to the Fermanagh Lakeland, I cannot explain to you what you are missing. To call it scenery is to diminish the amazing beauty of Lough Erne and the surrounding country. Takes my breath away every time.

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An interest rate anniversary

04/03/2010

BM writes: So the first anniversary has come and gone of the Bank of England's historic base rate reduction to 0.5 per cent.

And any number of consumer champions have issued press statements over the past few days fuelling the assumption that banks' interest rates should follow closely changes to the base rate, just as they did in the easy credit era that ended with the credit crunch.

But bashing banks isn't the same as championing consumers. And it needs to be understood that the credit crunch has changed the economics of banking.

One year ago, the official bank rate (aka the base rate) was reduced to 0.5 per cent. Tracker mortgages hit the floor (and in some cases went right through it), interbank rates fell too and the cost of borrowing from high street banks became keener than ever. All of this was good news for borrowers.

When those falling rates did not fall as fast or as far as the base rate, banks bore the brunt of much unfounded criticism. Although the banks still fund their activities using a mix of customer deposits and wholesale money, the proportions have changed: banks are now required to put more customer deposits in the mix. The result of this is that the cost of attracting those deposits from savers (typically two to three per cent over the base rate) now exerts a much greater influence than the Bank of England on the cost of mortgages and loans.

Other significant factors are making borrowing comparatively costly for banks:

no bank can borrow money for free; nor can it borrow money at the current Bank of England base rate (0.5 per cent). Borrowing from the Bank of England is normally conducted at the base rate plus another one per cent or more, depending on how the Bank sees the risk it is assuming;
nor can all banks can borrow money cheaply on the wholesale money markets. Some banks face much higher rates to reflect the increased risks that they face;
the securitisation market, which enabled banks to convert parts of their mortgage book into attractive financial products for big investors, so providing more cash for new mortgages, has all but dried up. This is due to the knock-on uncertainty about their exposure to US subprime mortgages. The US subprime problem was one of the root causes of the worldwide credit crunch;
British banks are now required to hold more than twice the capital than the international standards require and twice what they were holding before the credit crunch. Therefore this money cannot be used to support new lending to home buyers and to businesses;
in the recession more people are defaulting on their mortgage payments so the lending risk has gone up; and
the banks are also committed to paying bank the money they borrowed from the Government in autumn 2008 under the financial stability package.

Banks are returning to the old business models of the late 20th century, when mortgage borrowers were required to build up deposits, for instance, or offer greater security against the amounts they borrowed. This is because the banks are now required to do this too: they now must hold greater amounts of capital against the amounts they themselves borrow on the wholesale money markets.

Put simply, it is wrong to compare the economy today with the economy in 2007. The easy credit era is over, and with it went some of our assumptions about how the Bank of England base rate influences the cost of borrowing on the high street.

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Decimal Day

15/02/2010

Thirty nine years ago to the day, the banking system experienced a "historic and momentous" event. Britain "went decimal".

Banks were closed from 3.30pm the previous Wednesday and during the next few days the entire banking system was re-designated. New equipment, new till fittings, new coins - a new era had begun.

Familiar names such as the half crown, florin, bob, and tanner disappeared overnight, following the demise of the joey and farthing.

The old currency was not the easiest to work with; a reflection perhaps of its origins. The pound (currency unit) was originally the equivalent value to a pound weight of silver. The penny weighed 1/240th of this, so its value was 1/240th of a pound. Later the shilling (or Bob) was introduced, leaving twelve pennies to the shilling and twenty shillings to the pound.

Perhaps not too much of a surprise then that the new decimal currency was quickly adopted by most people.

See the full article here.

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Not the post-Davos blog

02/02/2010

BM writes: So don't be fooled by the disappearance of so many of the industry's top commentators to Davos last week. Mingling with the world's serial shoulder-rubbers is all very well, and it seems there was plenty of serious discussion going on beyond the formal sessions, but we should remember the World Economic Forum do not have exclusive ownership of good ideas. We found a few ourselves over the past week, which we thought we should share.

The Hansard Society's HeadsUp forum published its latest paper The Economy What Went Wrong? which sets out the fascinating results of an extended online discussion among school students on the state of the nation's finances. The teenagers' views are well worth a read. It appears they are as angered at MPs' expenses as they are at the scale of the financial crisis it isn't the financial cost, but the perceived breach of trust that offends them most. And they identify financial education as one of the keys to averting a future crisis (we'd agree with that). They also challenge the assumption that teenagers are boundlessly acquisitive consumers they clearly feel that too many people focused their energies on possessions and money. A fascinating, assumption-changing read.

And just to prove we can come up with some decent ideas as well, we published a short paper with IBM Consulting this week: Restoring Loyalty, Trust and Industry Profitability. We are trying to figure out how to make banking smarter: how to make it profitable again; how properly to learn about customers' needs; and how to accommodate the growing regulatory burden amid all this change.

Here's food for thought: we asked people if they agreed banks in general, and their bank in particular, treated customers fairly. Only 13 per cent thought banks treated their customers fairly; but 65 per cent were content that their bank treated them properly. Go figure.

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Haiti Earthquake Appeal

19/01/2010

Brian Capon writes: Wednesday the thirteenth. Not a good day. But the hour and a half I'd spent waiting (in vain) for a train to arrive, and the trek back home through ankle-deep snow seemed ridiculously unimportant when I saw the breaking news about the earthquake in Haiti.

One of my roles at the BBA is to co-ordinate the banks' response to disasters such as this and my immediate reaction was to contact the Disasters Emergency Committee who I knew would even then be assessing the situation through member aid agencies who were already on the scene.

Just as I was about to lift the phone I received an email from Pat Willson at the DEC. It was clear even at this early stage and with only sketchy information that this was a major disaster and that an appeal was virtually certain to be launched.

Whenever a DEC appeal is launched the banks will accept donations over their counters and through telephone and internet banking. Upwards of more than 100,000 front line staff need to be advised of the arrangements which have to be clear, reliable, secure and accountable. Although the formal decision whether to launch an appeal would not be taken until after a briefing from the aid agencies later that afternoon I wasted no time in alerting the banks.

In spite of the snow disrupting travel into London I managed to establish contact with the relevant people in the banks and once the DEC had confirmed that the appeal was to be launched, I could provide them with the details they needed to set up the arrangements. The DEC credit card donation line was opened immediately.

The appeal was formally launched on Friday and donations have been flooding in ever since.

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Farewell, Banking Codes

30/10/2009

Paul Ross writes: It's an historic weekend. From Sunday (1 November 2009) retail bank deposit taking in the UK will become regulated by the Financial Services Authority (FSA). Motivated in part by its responsibilities under the Payment Services Regulations (PSRs) - to be implemented on the same day - the FSA is introducing a Banking Conduct of Business Sourcebook (BCOBS) to replace the Banking Code and Business Banking Code.

A key aim of the Banking Codes was to provide consumers and small businesses with a straightforward source of reference to the minimum good practice standards they could expect from their bank, building society or credit card provider.

This new regime replaces the familiar Banking Code booklets with a regime that defines the outcomes required by the regulator - but not necessarily the ways in which these outcomes are achieved.

The FSA focus on outcomes, rather than prescriptive rules, means that there will not necessarily be a consistent industry standard of practice for providing products and services. The intention is clearly not to reduce consumer protection levels in any way, but there will certainly be less consumer information than under the current Code regime. The FSA has produced two consumer guides under its Moneymadeclear banner. One gives basic information about bank accounts, while the other gives information on credit cards (though the FSA has no role in credit card regulation). Banks, building societies and cards providers will all stock these guides in their branches.

The new rules are largely a consequence of a new European directive which comes into force on Sunday. The Payment Services Regulations (enabling the Payment Services Directive) will prescribe the way that payments are to be carried out within the EU. The regulations extend from information to be provided before a payment is made to the remedial action firms must take if a payment goes wrong.

In the UK the FSA will be responsible for monitoring and enforcing compliance with the PSRs for payments involving consumers and micro-enterprises that take place via regulated firms between the UK and other EU states.

The PSRs cover nearly all the retail payment activities of BBA's members including placing and withdrawing cash; direct debits and standing orders; credit cards and payment cards; and money remittance. One of the few areas that it doesn't impact is the payment and receipt of cheques.

With the FSA lined up to assume regulatory responsibility for such a large swathe of retail banking it was obvious to all that it made no sense for the remainder of retail banking products and services to be governed by industry codes. Thus, the Banking Conduct of Business Sourcebook (BCOBS) was born.

There is a gap, though: the demise of the Banking Code leaves retail credit without independently monitored regulation. The FSA is reluctant to take responsibility for credit and the Office of Fair Trading is an enforcer rather than a regulator.

To fill this regulatory gap, the Banking Code sponsors decided to create a Lending Code that could be independently monitored and enforced by the Lending Standards Board, a replacement to the Banking Code Standards Board.

Therefore, as the PSRs take effects and BCOBS is born, the BBA, Building Societies Association and UK Cards Association will launch The Lending Code. This will ensure the Banking Code's current conduct of business standards for providing overdrafts, unsecured loans and credit cards to personal and small business customers are maintained. Customers will also continue to be able to access information on how credit assessment must be carried out and how cases of financial difficulty must be managed.

The Lending Code will also include new requirements covering risk-based repricing; a breathing space for credit card customers in financial difficulties, and good practices for dealing with customers in financial difficulties who have a mental health condition.

You can find out more about the rules, the new Lending Code and some useful links in our article In Memory of the Banking Code.

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Overbash

22/10/2009

Brian Mairs writes: The banking sector comes in for a great deal of criticism, some of it admittedly justified and all of it widely publicised. But we cannot let today's story on moneysavingexpert run without comment. We feel the website is misleading its readers by distorting a serious issue into a simple bank-bashing story. It may be a good read, but it is a very partial account of the truth.

The moneysavingsexpert story Ombudsman slams banks for ignoring hardship claims accuses banks of failing to meet their obligation to help customers facing financial hardship - specifically those awaiting the outcome of the court case on fees for unarranged overdrafts. It cites a letter from the Ombudsman's website that it says supports this claim. But it does not cite the letter issued by the Ombudsman at the same time (and on the same web page) to claims management companies.

The letters (here and here) were in fact issued together (on 2nd October), to reflect Ombudsman concerns both about the information provided by some banks and claims handlers burdening the Ombudsman with spurious claims which simply slow down the process for legitimate claimants.

The banks are committed (through the Banking Code) to working sympathetically and positively with customers to resolve their financial difficulties. And there is nothing in the Ombudsman letter to challenge this. It is also a condition of the case on fees for unarranged overdrafts that banks process claims for those in financial hardship. The banks believe they are satisfying this condition - and the regulators are monitoring this closely (the FSA's latest statement on this waiver is here).

So this story is at best partial; at worst misleading. It's not fair to the banks or to the Financial Ombudsman Service. And more significantly it's not fair to the readers.

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What we're reading

05/10/2009

BM writes: The past month has seen a flurry of papers issued about the causes and consequences of the economic crisis, and we at the BBA have been sifting through as many as we can manage. So we thought, as a public service, we ought to highlight a few here. The authors' views and opinions are not our own, and a recommendation to read them here does not mean we agree with everything said in them. We just thought that if you are interested in the subject (as you are as you're reading this blog) you mind find them engaging.

Joseph Stiglitz, the spiky and opinionated Nobel laureate, has produced a brief but fascinating paper on where he believes we should lay the blame for the financial crisis. And for a change it's not just the banks. The Anatomy of a Murder: Who Killed America's Economy? is a brief, well-argued polemic setting out the chain of causation, starting with unregulated US mortgage brokers, which caused the global downturn. It's short and it's pithy - the kind of conciseness you can only achieve if you really know your stuff.

The think tank Reform published Nicholas Boys Smith's invaluable paper A Dangerous Consensus, which argues that the public vilification of the banking sector is blinding people to what really needs to be done. He sets out to demolish what he sees as six myths about the crisis, most effectively the mistaken but common belief that the bonus culture is what caused it. He cites examples of good practice in unlikely places: Bear Stearns and Lehmans virtually led the sector in their promotion of employee share ownership schemes and long term incentives to retain staff, for instance. An excellent corrective to reading oh, just about anything else.

The Institute of Public Policy Research (IPPR) issued its paper How to Make Capitalism Better. Their senior economist Tony Dolphin wrote the paper based on a series of round tables at IPPR, and therefore the conclusions have already attracted a broad consensus: reform of the big international institutions (such as the IMF), international regulatory principles - you get the idea. But the paper also (intriguingly) calls on economic policy to focus on the subjective wellbeing of the population, rather than focusing on GDP, and for central banks to keep a lookout for asset price bubbles (predominantly houses).

But before you read any of these, do read our chairman's recent speech in Frankfurt. Stephen Green's speech Good Value in Banking sets out in four pages his vision of the future of banking, stressing as essential the return of confidence and trust to the sector. He admits concisely where we went wrong (this is the bit Lord Turner cited in his recent speech as endorsement of his own view about "socially useless" banking) but sets out clearly the necessary conditions to put it right. A must read.

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That Turner quote

23/09/2009

Brian Mairs writes:

Lord Turner's speech at the Mansion House has received plenty of coverage, so we beg leave to add modestly to the volume of comment he has generated.

He quoted our chairman's recent speech in Frankfurt, to support his view that some of the City's trading activity was "socially useless". When Lord Turner first wrote this (in an article in Prospect magazine last month) we didn't disagree: any mature industry will find some of its activities are not relevant to society, and it is the task of all of us in the City to correct this where we find it. But we thought we might offer the context around the quote that Lord Turner chose. Stephen Green said:

"At our best, what we do allows businesses to supply products and services that customers need; allows individuals to own homes and cars; to save for a rainy day and for retirement; and to protect themselves and their businesses against the unpredictable. If we care about human freedom and human well-being, we cannot do without these functions.

"But at their worst, financial markets can be engines of destructive excess. In recent years, banks have chased short term profits by introducing complex products of no real use to humanity. It is clear that very many innovations introduced by the financial markets have been socially useful, and indeed are critical to economic and social development to our prosperity, in short.

"But it is equally clear that some parts of our industry had become overblown, and that certain products and services failed the tests of usefulness, suitability and transparency.

"If we are to regain the position of trust and confidence that is a fundamentally important mark of social and economic health, the financial industry will need to learn the lessons of a crisis that has shocked and frightened the world."

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40 years - congratulations or commiserations?

02/09/2009

Brian Capon writes: Exactly 40 years ago today I walked into the Midland Bank branch in Wellingborough, Northamptonshire to start the first day of my banking career.

It started off quietly enough; stamping cheques with a rubber stamp and yes, even making tea when the messenger, Reg, was on holiday.

Or at least it did for three days...

It was an innocent enough mistake. Anyone could drop a bundle of cheques onto the alarm button. The fact that a branch full of customers ran for shelter when they saw the front line staff dive beneath the counter wasn't my fault; I couldn't help it if no-one had told me how to turn the darned thing off. I survived, but the manager did remind me that I was on six months' probation.

Then of course there was the incident when I accidentally caught the light over the manager's desk with a ladder. The falling glass only caused minor scratching to the highly polished woodwork, and nobody was hurt. I can't remember what I was doing with the ladder in his office though.

There was great excitement when the branch had one of the new-fangled cash dispensing machines installed. The big cities first had them about seven years before we did, but we were out in the sticks, after all.

Then we had a computer installed in the branch. I was part of the project team looking after its installation. It didn't teach me anything about computers though - except that if we pressed the wrong button we would lose all the day's work completely.

Banking exams were tough; ten different subjects including law, accountancy and economics. Studying only in the evenings didn't help, but I eventually got them - coincidentally, the same year that our daughter was born.

A lot of water has passed under the bridge since then and I've now been working in banking media relations since 1991.

Do I miss the 'old days'? Not really. After all, banks opened only between 9.30am and 3.30pm; there were very few cash machines and internet banking wasn't even a dream.

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Never let the facts get in the way of a good story (2)

02/09/2009

Brian Mairs writes: In our last posting (below) we promised to let you know if the Evening Standard published our letter responding to their front page story of last Tuesday "Banks hold back home loans". One week on, it still hasn't appeared, so we are assuming it won't, and we thought it might interest you:

Sir -

You compounded a mistaken common assumption by using partial statistics to produce your front page bank-bashing polemic on Tuesday (“Banks hold back home loans”, Tuesday 25 August 2009).

You assert that banks are “starving households of lending” - but you offer no evidence that this is the case except that banks’ net mortgage lending figures - in other words after repayments have been factored in - in July were the lowest for nine years. There are many other factors at work here. Houses are cheaper, so housebuyers have to borrow less. Borrowers are putting up bigger deposits in order to secure the best mortgage deals, so again they have to borrow less. And demand for mortgages is lower as we are in a recession – so fewer people are asking for mortgages.

In fact, the statistics show that gross lending for the month was £8.4 billion and banks are still approving more than four out of every five mortgage applications, which has been the norm for many years now.

The banks’ own statistics clearly show that approvals of mortgages for house purchase have doubled since their low point last year and continue to rise. There is cause for tentative hope of a recovery in the housing market. One of the things holding back this recovery is confidence, and that is likely to remain weak - in London at least - while your newspaper mistreats statistics so irresponsibly.

David Dooks, Statistics Director
British Bankers' Association

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Never let the stats get in the way of a good story

26/08/2009

David Dooks writes: The latest BBA figures from our members on lending and deposits provided some cheer in the newspapers this morning, but a discordant tone was set the night before by the Evening Standard front page story ("Banks hold bank home loans"). We have written to the Standard in the hope of putting the record straight, and we willlet you know if our letter is published.

In brief, this is why we felt the Standard painted too gloomy a picture of the outlook (and why it was so completely wrong to infer from the statistics that banks were "holding back" mortgages).

On mortgage lending, the numbers of loans approved for house purchase (38,181) have risen consistently since the low point towards the end of last year. That is nearly 80 per cent higher than a year ago and similar to the numbers of applications being approved in early 2008. The banks are approving four out of five mortgage applications and the range of mortgages available has expanded this year. Gross (new) lending is running at around £8 billion a month and is only lower than volumes a year ago because transaction chains are more drawn-out and customers are not re-mortgaging or taking out equity-withdrawal products to the same extent. Household appetite to extend borrowing remains subdued, both in the secured and unsecured markets.

The simple arithmetic net lending = (gross lending - repayments) explains that if gross lending is subdued (as it is) and repayments are holding up (as they are), a depressed net figure will result.

On company lending, July's fall of £4.1 billion largely resulted from an unwinding of short-term finance provided by the banks to the public sector in June. Allowing for this technicality would have seen both months' lending contracting by some £2 billion. We accept, and indeed would reasonably expect, that company demand for finance would contract in line with GDP, but that contraction in bank lending is only around three per cent, when GDP has contracted by about five to six per cent over the last year. In the first half of this year, large corporates have spread their funding by raising money through equity or debt issuance, thus reducing demand for bank lending. Lending to small businesses (reported by a separate BBA survey) has risen month-on-month since last October and companies generally are responding to the recession by containing debt, reducing inventories, laying off staff and operating out of cashflow. It would be very surprising if companies continued running as before, given the adverse trading conditions.

Lending figures are not generated by supply alone, as the Standard suggested. Customer demand plays as big a part in the makeup. In a country still in recession, it is unreasonable and naive to expect all parts of society to function as if there were no impact on their attitudes to borrowing. From the fully-functioning lending market of a couple of years ago, the building societies, specialist lenders and foreign banks have scaled back their lending very significantly - that may be where perceptions of a lack of finance come from - but the main high street banks should not be subject to prejudiced commentary when they are the main players in many financial markets.

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Burying good news?

06/08/2009

BM writes: Interesting running order decision last night in London's Evening Standard:

P1: "City fears 400,000 will default on mortgages"

P29: "House market's triple boost of good news"

So one negative forecast is front page news, whereas three positive indicators end up in the back half of the paper. Don't expect confidence to return to the housing market anytime soon then. Not in London anyway.

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Beach reading for bankers

29/07/2009

BM writes: As July comes to a close many of the BBA team are heading off with their families in search of sunshine and a bit of a rest. And as with all holidaymakers they will be packing some beach reading with them.

Yes well take some trash with us, but you wont want to know about that. The BBA book swap shelf is regularly replenished with murder mysteries and thrillers of all kinds and we wont be short of paperbacks to take with us.

Anyway, inspired by Conservative MP Keith Simpsons recommended summer reading list (here), these are a few of the recommendations shared among our colleagues in the office in recent weeks.

Who Runs Britain? by Robert Peston

This is not a book about the financial crisis (though turn to page 160 for his excellent account of the Northern Rock run). It is a trawl through Peston's extraordinary contacts book to support a simple thesis: "We are constructing a UK where the share of national income taken by those at the pinnacle of the income scale is at levels not seen for a century." This is a very angry polemic, very well argued. More please Robert.

Fools Gold: how unrestrained greed corrupted a dream, shattered global markets and unleashed a catastrophest by Gillian Tett

Of the books published so far on the credit crunch and its causes, this is the one most likely to endure: probably as close as we will get to an authoritative account from bankers perspectives of the financial collapse. Gillian Tett can afford to take a less aggressively hostile stance towards the industry than other writers this is more journalism than polemic, and as such is a more effective criticism of the financial services industry than any other book we have read.

The Storm: the world economic crisis and what it means by Vincent Cable

This short book contains no surprises for anyone who has listened to Vincent Cable in recent months (and how could you have missed him?). It is a brief restatement of the views he has been expounding since the credit crunch began (before that in fact) about the dangers of a seriously overleveraged economy. But rather than angry polemic, Dr Cable gives a reasoned explanation of what went wrong and how he thinks we should fix it.

He states (twice) that the book was written in a rush, which might explain why on p. 157 the former head of RBS is referred to as Sir Frank Godwin. But it is well-argued and its probably the shortest read among our recommendations.

Plus of course we will be reading Good Value: Reflections on Money, Morality and an Uncertain World by Stephen Green. Stephen is the BBAs chairman (read his excellent speech at last months BBA conference here).

More holiday reading suggestions next week

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Our island story

16/06/2009

Brian Mairs writes: So the credit crunch has quietly entered another stage. It has now been enshrined in our nation’s history, ready to be repeated years hence as a few paragraphs in school textbooks.

Last night’s telly offered two early examples of this. First Teletext holidays offered a very funny advertisement which subtitled a conversation between two cats, one bewailing the banks who caused the credit crunch and the other noting that all the same you could still get bargain holidays on Teletext. Good work. We did smile. Then the second example was Sarah Beeny’s Channel 4 property programme, the recently-renamed Property Snakes and Ladders. In between the stories of two twentysomethings leveraging their family cash to become aspiring, Sarah Beeny took some time out to ask who caused the problem. And there followed a succession of quite venerable talking heads blaming it all on the banks. Well they were hardly going to blame it on property speculators, were they?

This is all fine knockabout stuff for a bit, but it does point to a problem we might face in years to come. Yes the banks have admitted their roles in the credit crunch, have apologised for it publicly and are working furiously to return the banking system to something approaching normal. They continue to accept that the sector’s reputation has taken a battering from which it will take a long time to recover, but they are working to restore confidence in the system which did in the good times bring enormous benefits - and wealth - to the UK.

So let us hope the history books of the future can afford to be more reflective of how we got here, and how we can get out of it. And let us hope they can ask the vital question: were any other factors to blame? And if so what can we learn from them so this never happens again?

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Supply and demand

28/05/2009

Brian Mairs writes: Two stories in the papers this week serve as a reminder that supply and demand are ineluctable forces - and they turn up in the most surprising places.

The first is fairly clear cut: our monthly statistics release. Everyone (ourselves included) calls them bank lending statistics but they could just as readily be called customer borrowing figures: how much customers are borrowing from banks. The difference this would make to reporting of these figures is huge. Instead of reading that banks are lending less to their customers (from which we can infer that banks are holding on to their cash) we might be reading today that customers are borrowing less from banks (which suggests that in the downturn people are paying off rather than extending their debts and are not buying houses they still believe to be overpriced). The supply of cash is therefore irrelevant: the demand for it is falling. The truth as always is somewhere in between, but it seems few commentators are looking there.

The second instance of supply and demand is less obvious. The Financial Ombudsman Service reports that the number of complaints against financial firms has increased and the coverage has properly been that more people are complaining than ever before. People are demanding restitution. But the other side of that coin is that it has never been easier to complain: not simply because all financial firms publish their complaints procedures, and the Ombudsman Service is more widely known and understood, but also because there are any number of consumer websites running campaigns for consumers explaining how they can seek redress. These factors might also be boosting the supply of complaints.

It's not the whole story by any means. Financial firms sometimes get things wrong, and they have been instrumental in the design of the complaints procedures that aim to set them right - including the Ombudsman service itself.

But next time you read a news story - any story - which concerns a conflict, think of it in terms of an imbalance between supply and demand. From this perspective, the issues may not be as stark as they appear.

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We're tweeting LIBOR!

22/05/2009

Brian Mairs writes: Well we thought it would be an experiment worth trying, so let’s see. Yesterday we announced that we are now using the online texting website Twitter to post daily mid-afternoon updates of BBA LIBOR, “the world’s most important number”.

If the last sentence made no sense to you, these next ones should help. If you don’t know what Twitter is, click here. If you don’t know what BBA LIBOR is, click here. And if you want to know why it’s called the world’s most important number, click here.

There. That’s better. Now the reason why we are tweeting the rate for three-month sterling is because this is the benchmark for quite a bit of commercial and mortgage borrowing. We publish 149 other rates, in ten currencies and in 15 maturities ranging from overnight to one-year borrowing, but we felt this would be a good place to start.

We have recently launched a new website of LIBOR resources at www.bbalibor.com to reflect the fact that public interest has grown so greatly in recent months (as the Financial Times put it yesterday on the front of its Companies & Markets section: “As a barometer of the financial crisis, it’s been hard to beat Libor, the London interbank offered rate for borrowing short-term funds in the banking system”.)

Please let us know what you think – either by replying to this blog entry (of course) or tweeting us at www.twitter.com/BritishBankers.

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Fighting our corner in the press

08/05/2009

Brian Mairs writes: A week has passed since the Treasury Select Committee issued its incendiary report on the economic crisis (their report is here, our response here) and it earned a great deal of coverage. Our main complaint about the report was that it presented anecdotal evidence rather than statistics to back up its assertion that banks were not lending to small businesses.

Some newspapers accepted uncritically the Committee's version, sought no reaction from the banking sector and simply gave us a good kicking. Others noted that lending to small business was actually up by five per cent on last year (see our statistics release here).

So these are the letters we wrote to the Daily Mail and Mirror letters editors, together with links to their stories. Neither was published, but we thought they might be of interest to BBA blog readers:

To the Daily Mail:

Re: MPs: Greedy banks have let Britain down, p.12, Friday 1 May 2009

SIR – I was sorry to see that your newspaper copied out the press release of the Treasury Select Committee's report on the financial crisis but then chose not to include any comments from the banks, although we had sent our comments to you. In its recent report, the Treasury Committee uses anecdotal evidence to paint an overwhelmingly negative picture of the banking industry and neither that committee nor your article sought fit to present the picture as it is – and that is some banks and building societies have got into very obvious difficulty but the majority are managing well in this historically difficult time.

We have worked hard with the Government over the past year on the changes required. And on lending there is now data to confirm that bank lending to small businesses is growing (by five per cent in the past year), and that banks are stepping up to the plate to support British business and provide mortgages while other lenders retreat. It is a pity that the Treasury Select Committee decided to publish a lightweight report and a high octane press release, rather than present the thoughtful and balanced report that the historically difficult global circumstances deserve.

To the Mirror:

Re: SHAMELESS BAILED-OUT BANKS FAIL TO BAIL OUT BUSINESSES, p.10, Friday 1 May 2009

SIR - It is bad enough that the Treasury Select Committee uses anecdotal evidence to pad out its report on the financial crisis, but it is a real disappointment that the Mirror then published the story without any balancing comment from the banks it criticises. Are we no longer allowed to defend ourselves in the Mirror?

For the record, bank lending to small businesses is rising, not falling: it's gone up by five per cent in the past year according to the published and confirmed statistics. Plus banks have made many new commitments to their customers to help them through the downturn. The banks are working with the Government to pull Britain out of the downturn. Playing the blame game will just pull Britain back down and present the country in a poor light.

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Preparing the ground for green shoots

28/04/2009

David Dooks writes: I am often asked if I can see any green shoots that might signal the beginning of an economic recovery. All I can say is this: as one who has been around long enough to have seen previous recessions I know it’s notoriously difficult to predict the nature and timing of any upturn. I also know that when we do recover – as we surely will – it will not be a steady, even ascent to sunlit uplands. There will be ups and downs and difficult periods along the way.

And so it is with today’s March figures for the main high street banks.

Some commentators in search of economic spring were quick to take a green-tinted view of slight month-on-month improvements in mortgage borrowing in our January and February statistics. Then suddenly today’s figures reveal a slight weakening from the month before.

What are we to make of this apparent ‘reversal’? Well, my first point would be that at times like this it’s essential to keep your eye on the big picture. While it may be tempting to read a lot into monthly fluctuations the fact is that housing activity is still a long way below what we were seeing a year ago, with mortgage approvals down 25 per cent from last March. Any recovery, in the full sense, is still some way off.

And at this point I would also like to address a common misconception: that the big falls in mortgage borrowing during the credit crunch have been driven by banks somehow pulling back from the market and not lending. This is simply not the case.

Many of the non-bank mortgage lenders we saw in the boom years have now left the market. But the banks are still lending, and they will continue to lend. Banks still accept around three in every four mortgage applications they receive, a similar proportion to before. But in the midst of a deep recession it is not surprising that there is a general lack of activity in the housing market, as there is in other parts of the economy.

I don’t know exactly how or when the housing market or the economy will recover. But I do know that banks understand their role in assisting that recovery. They are committed to supporting businesses and individuals through the difficult times along the way. Banks will continue to lend to borrowers who meet the appropriate criteria. And as the housing market recovers and demand for mortgages increases then of course you will see mortgage lending increase.

But rather than focusing all our attention on guessing when the first green shoots will appear we are working with the Government and others to make sure we promote the conditions in which those green shoots – whenever they sprout – can flourish and grow.

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Frauds are back on the boil

24/04/2009

Brian Mairs writes: So the City of London police warns of an upswing in boiler room scams as a result of the downturn.

We know fraudsters are using the downturn to prey on people. Perhaps the worst example, though not a boiler room fraud, is the recent “BBA work eligibility certificate” fraud we warned against here.

But as for boiler rooms, the good news is that there are some very useful websites to help you guard against this kind of fraud. We posted up some helpful advice here. And the Financial Services Authority’s authoritative Money Made Clear section is also enormously useful in pointing you towards resources that can help, as is the Office of Fair Trading.

And by the way if you want to watch a movie which shows quite well how these operations work, go and rent the 2000 film Boiler Room. Not a classic, but worth a watch.

One further point: do not, please do not, engage with these individuals even to the extent of confirming your personal details. The more information you provide to one caller about yourself, the more the next one will know. In the UK we are often too polite to hang up: it is one politeness we might do well to unlearn.

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Bank bailout bingo

22/04/2009

Brian Mairs writes: Oh for goodness' sake. Today's papers display a wild range of projected values for how much the Government's support of the banking system is costing. Some is speculation on what the Chancellor is expected to say; some is drawn from yesterday's IMF calculations which were subsequently withdrawn.

The Daily Telegraph says £5,000 per taxpayer; the FT says 9.1 per cent of GDP (no we're not working this out); The Times does work it out helpfully (£130 billion); the Indy says £3,000 for "every man, woman and child in the country" (sub that copy!); and the Mail agrees with the Indy but uses the handy term "every person in Britain".

Well, this is genuinely important and interesting news. But nowhere is it mentioned that any of this might be paid back. The banks have publicly committed to paying it all back, and are meanwhile paying interest of 12 per cent on the amounts they are repaying on the preference shares. That's more than you'll get on the latest gilt issue.

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More info on lending trends

21/04/2009

Brian Mairs writes: A new publication hit the virtual mat today – Trends in Lending, a monthly assessment by the Bank of England on lending in the UK economy. Its 16 pages contain a wealth of information from the six major UK lenders which comprise the Chancellor of the Exchequer’s Lending Panel.

The report recognises the difficulty in determining whether changes in bank lending reflect supply or demand. It is never clear cut whether subdued borrowing means customers have less appetite to borrow, or banks have less credit available to lend.

The BBA draws three main points from the report:

Business financing costs have fallen as interest rates have fallen. Businesses with a viable plan to lead their companies through recession should be able to renew or secure funds.
Demand for mortgages has reduced as house prices have fallen, but mainstream banks are responsible for a greater proportion of the market as other lenders have scaled back activity or exited the market. The mortgage market is now reverting to its traditional model: house buyers will be expected to put down a deposit before accessing the best deals.
Meanwhile overdraft and credit card lending continue to reduce, due largely to a fall in demand: in the downturn. People are borrowing less, reflecting the uncertain economic landscape and concern about personal circumstances.

Or put simply, in a downturn, individuals focus on consolidating their finances and specifically on bringing down their debts. There is little appetite for risk taking, so (for instance) the only people currently moving house are those who need to do so. Companies, both big and small, are concentrating on maintaining their market presence during the recession, while lenders are, as in all downturns, highly attuned to risk pricing and the viability of the company.

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Journalism - what's the point?

08/04/2009

Lesley McLeod writes: there was a lot of interest in crisis communication - or issues management if you are using the PR term - when I spoke to the Regester Larkin Thursday Club last week. I'd been invited along to give a bankers' view of the current economic situation and the communication challenges facing the industry. The main issues the audience latched onto were: dealing with stress; rebuilding reputation; and journalistic responsibility

I was asked how communication teams cope in times of stress. I couldn't see what stress they were talking about - it just seemed to be what we were paid for. But, as the resident psychological counsellor present told me, it's - apparently - a characteristic of post-traumatic shock that you don't even realise you've got it. People - and they were mostly other PR practitioners - wanted to know what could be done to redress the balance and restore the industry's reputation. I said we needed to work for our customers, explaining what we were doing at every step, and - if we did that - it would eventually feed through. I was very against anything flash, recommending real action rather than puff.

The role of the media in the crisis caused me, I'm afraid, to fall out on one of the broadcast journalists in the audience. I simply don't think it's good enough to claim that hacks are poor little innocents who just report things. It denies all responsibility for one's actions and suggests that everything is consequence free. Well, it's not. I don't think reporters should be gagged - far from it - but if they report it, they have to stand by the effect of their words. Surely, if there is no effect, there's no point!

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Nice one Beeb

27/03/2009

Now this is public service broadcasting. Yesterday morning, at an hour so early it only appears on broadcasters’ clocks, an exceptional gathering of international business leaders, thinkers and finance experts met at Canary Wharf for more than two hours of discussion on next week’s G20 summit.

The event was chaired by the BBC’s economics editor Stephanie Flanders (her account is here) and helpfully generated more light than heat. Broadcasters usually prefer punch-ups to meaningful discussions – they make much better telly – but yesterday the cameras rolled on a long discussion about people’s hope and fears for the G20 summit, their priorities looking ahead and – crucially – how we are going to get out of this global recession. Good news for licence-payers too, since the BBC evidently produced masses of quality material for radio, TV and the web without running all around the place.

And yes the BBA was there. We fielded our executive directors Eric Leenders and Paul Chisnall – the ones Stephanie characterises in her blog entry as “crisis-weary”. Honestly Stephanie it was just the early start.

Eric and Paul reported that those at the meeting seemed to be looking forward to the Summit with optimism, mixed with cautious expectation.

Eric underlined the opportunity for the Summit to contribute to restoring confidence as part of the process of getting credit flowing again, while Paul pointed towards the comprehensive regulatory reform programme that was underway. All the meeting seemed to be looking forward to the Summit with optimism, mixed with cautious expectation, and there was consensus on the need for Summit leaders to re-commit to the open global economy.

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Mortgages and multiples

24/03/2009

We were pleased that our monthly statistics (issued this morning) got balanced coverage today. Yes, the statistics showed the third successive monthly rise in mortgage approvals, but that did not necessarily indicate firm recovery across the whole mortgage market. Our statistics cover the UK's main high street banks, who traditionally offer around two-thirds of the UK's mortgages. Other lenders - building societies, non-UK banks, specialist and sub-prime lenders - are now offering far fewer mortgages so the high street banks are taking up the slack.

But here's another thing.

Over the past four years, most mortgage business has been transacted with a deposit of around 25 per cent and a salary multiple of between two-and-a-half and three.

Of course this is not a rule: people with smaller deposits or comparatively small salaries can borrow more if their lender accepts their earning power is likely to rise in the coming years.

But there is currently much buzz around the idea that statutory limits be put on mortgage offers - say, a minimum deposit and a maximum salary multiple. So if the typical characteristics were instead made compulsory (a 25 per cent deposit, plus a loan of two-and-a-half to three times annual salary), households with the average income of £40,000 could only borrow £120,000, even though the average UK house price is more than £150,000. And of course that's before the many other costs of buying a house - agents' fees, stamp duty, conveyancing, yada yada yada.

So there would be three effects for the economy, any one of which would be fatal to economic recovery:

First, some people who already hold mortgages would fall outside these criteria and therefore could not re-mortgage if they wanted to.
Second, house prices would be distorted as the market sought to correct itself, reflecting the lower volumes of mortgage funding.
Third, while all these seismic changes were taking place, a generation would lose its opportunity to get on the housing ladder.

Sometimes complex problems have simple solutions, but this is not one of those times. The convention that housebuyers should aim to borrow three times their salary was and is a good rule of thumb, and good guidance both for borrowers and bank managers, but enshrining it as a rule is as pointless as stipulating that a baker's dozen must equal 12, like every other dozen.

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Watch out for Watchdog

17/03/2009

The other night, BBC1's Watchdog deftly but wrongly extrapolated from a few case studies that they had uncovered a massive problem - in this case with our free account tracing service.

Of the 250,000-plus claims made directly through the BBA or through the free online tracing service www.mylostaccount.org.uk some customers are inevitably disappointed, etiher because the system fails them (it is not infallible, though we try to make it that way) or because they had in fact closed the account (it happens, and surprisingly often). So please be reassured: banks, building societies and National Savings & Investments are all committed to reuniting customers with the estimated £850 million sitting in dormant accounts. Four of the biggest have also employed agencies to track down the owners of lost accounts.

While we never like to hear of cases where customers feel the process has not worked for them, and will do what we can to help, a glance at the Watchdog blog suggests such experiences are relatively rare. The silent majority, it would seem, are successfully progressing their claims directly with their bank or via mylostaccount. A few bloggers have pointed out that the system has not traced their accounts even though they are open. But the system traces dormant accounts only: if the account is active it is not included in the search.

But there’s more good news. Where money remains unclaimed after all efforts have been made to find its owners, the community will benefit. Far from sitting there on banks’ balance sheets, the money is slated to be used for community projects under a new government scheme (though the owners will always retain their right to claim it). All major banks are committed and have been working for many months to make the scheme a reality. It all began long before this week’s Watchdog. And the benefits for tens of thousands of account holders and the community will continue long afterwards.

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Not a typical day

17/03/2009

Well it’s been a right old scrum today at the BBA. Setting aside the Treasury Select Committee’s latest hearing (with Lord Myners) and our own chief executive’s appearance on BBC2’s The Daily Politics, the BBA communications team has been furiously busy on three big stories today.

First the FSA’s latest mortgage lending data has been published. There is plenty to digest in this essential indicator of the mortgage market. The repossession figures in particular are higher than commentators anticipated. But hold on: the FSA repossession figures relate to individual loans, rather than properties - if someone has two mortgages over the same property, then the FSA figures will show two repossessions even though only one property is involved. And the repossessions are largely by lenders other than high street banks, by a factor of more than five. For every 1,000 mortgage repossessions in 2008, high street banks accounted for two: other lenders accounted for 11. Banks are very reluctant to repossess a property: this will be very much a last resort after all other avenues such as rescheduling the loan and payment ‘holidays’ have been fully considered. And even after this stage has been reached the bank will still be willing to work with the customer to find a solution.

Next, the Government announced via the BBC and Press Association (nothing official yet) that the Government was going to introduce legislation to stop banks from increasing card credit limits unless the customer asks - and the same for sending credit card cheques. We have been working with the Government on this for ages – both issued are in fact tabled for discussion at Thursday’s meeting of the Consumer Finance Forum, which the Government established to discuss these sort of changes. So it was a bit surprising to see the decision made in advance of the meeting. Our view remains that the vast majority of bank customers use credit and use it sensibly. So careful consideration needs to be given to any initiative constraining customers’ use of credit.

And an idea appears to be gathering momentum that post offices be able to provide banking services. Competition is no bad thing for customers, of course, and post offices have already proved that they can provide banking services – they’ve been doing it for years. We issued our latest statistics today on the number of basic bank accounts accessible from post offices. So we look forward to hearing more on this initiative.

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