BBA https://www.bba.org.uk The voice of banking Sat, 01 Nov 2014 02:30:20 +0000 en-US hourly 1 http://wordpress.org/?v=3.9.1 BBA response to FPC leverage ratio review https://www.bba.org.uk/news/press-releases/bba-response-to-fpc-leverage-ratio-review/ https://www.bba.org.uk/news/press-releases/bba-response-to-fpc-leverage-ratio-review/#comments Fri, 31 Oct 2014 16:14:32 +0000 https://www.bba.org.uk/?post_type=news&p=33045 Read More]]> Responding to the Financial Policy Committee’s review of the leverage ratio, BBA Executive Director Simon Hills said:

“The Bank’s proposals will provide the UK banking industry with a framework which balances safety with the need to keep lending affordable for businesses and individuals.

“The proposals are clear, simple and further enhance the safety of the UK banking industry. They will help to ensure that the UK has one of, if not, the safest and most competitive banking markets in the world.”

Notes to editors

The FPC’s review of the leverage ratio can be found here:

http://www.bankofengland.co.uk/financialstability/Pages/fpc/fscp.aspx

The BBA’s response to the leverage ratio consultation from September can be found here:

https://www.bba.org.uk/policy/financial-and-risk-policy/prudential-capital-and-risk/leverage-ratio/bba-response-to-leverage-ratio-paper/

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Are traders geared up for MiFID II? https://www.bba.org.uk/news/insight/are-traders-geared-up-for-mifid-ii/ https://www.bba.org.uk/news/insight/are-traders-geared-up-for-mifid-ii/#comments Fri, 31 Oct 2014 15:38:14 +0000 https://www.bba.org.uk/?post_type=news&p=33042 Read More]]> We are in the midst of a digital revolution and the financial industry is impacted as much as other industries. In the last ten years, innovation in the financial markets has gathered pace with superfast execution speed, auto pattern identification trading and automated market inefficiency robots. This innovation has brought challenges for regulators across the globe with concerns about flash crash, market manipulation and front running.

The Markets in Financial Instruments Directive II (MiFID II) is one of the first attempts to regulate this technology driven sector of financial industry. The following key requirements apply to high frequency trading (HFT) and algorithmic trading (AT) firms:

  • All HFT firms engaging in proprietary trading to be authorised under MiFID II.
  • HFT firms to disclose trading strategies and code to competent authorities each year.
  • In addition to systems and controls requirements on the use of algorithms, HFT firms who use market making strategies on trading venues will be required to enter into market making agreements with the venues. This is designed to ensure they provide liquidity on a consistent basis.
  • New registration system and control requirements.
  • Trading venues will be required to set limits on the maximum number of order messages that a market participant can send relative to the number of transactions they undertake.
  • Equity exchanges in Europe currently voluntarily set minimum increments, ‘tick sizes’, by which prices can change. Implementing measures will set minimum tick sizes in shares and other similar financial instruments.
  • There will be controls on venue pricing to ensure that it is transparent, fair and non-discriminatory and can be used to penalise excessive order messaging.

Opinions among experts on the suggested approach are already divided, with some predicting little or no benefit to the market.

Click here to read “Tackling Challenges of High Frequency Trading Through MiFID II,” which explains what HFT and AT are and how MiFID II is aiming to address potential systemic risk and market abuse.

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This week in Westminster https://www.bba.org.uk/news/banking-matters/this-week-in-westminster-18/ https://www.bba.org.uk/news/banking-matters/this-week-in-westminster-18/#comments Fri, 31 Oct 2014 14:25:46 +0000 https://www.bba.org.uk/?post_type=news&p=33036 Read More]]> Lords EU Sub Committee (Economic and Financial Affairs)

The Lords EU Sub Committee on Economic and Financial Affairs continued its review of the EU financial regulatory framework. Topics of discussion included the legislative process, the success of regulation, relationship with international regulation and ESAs.

During the first session the Committee heard from Verena Ross, Executive Director, ESMA. Issues discussed included the legislative process, regulation and ESAs.

Key points:

Legislative process

  • ESMA was not formally involved at Level 1, Ms Ross explained. Continuing, she said that it had contributed when asked to, and had worked hard during the Level 2 process.
  • She argued that it would make sense for ESMA to be more involved in Level 1 legislation, as ESMA’s hands were sometimes unhelpfully tied by misguided intentions at the earlier stage.

Regulation of markets

  • Ms Ross argued that ESMA had balanced opening markets with requiring certain standard be met, and that its role was providing technical expertise to ensure different governance regimes worked.
  • On banking union, Ms Ross said that she didn’t see any immediate gaps emerging across regulators and supervisors, but accepted that this should be monitored.

International regulation

  • Ms Ross said that it was important to look at how the European market could be better integrated with global markets.
  • She wanted the UK to play a role in influencing how the international aspects of financial regulation should be operationalised across the EU.
  • Closing the hearing, Ms Ross said that Commissioner Hill would have to deal with “the next phase” in taking the financial services single market forward, and change the market’s structure to help European economies achieve better growth.

In the second session the witness were David Lawton, Director of Market and Christopher Woolard, Director of Policy, Risk and Research, FCA. Issues discussed included

Key points:

Reform since 2008

  • Mr Lawton said that reforms had been “thorough and effective”, but there were still challenges relating to the details of legislation and its implementation.
  • Reminding the Committee that the European response had occurred in a global context, he accepted that there had been a few inconsistencies.
  • Mr Woolard said that the agenda had been ambitious, but overall the FCA thought that it had, “in broad terms”, been correct.

Success of regulation

  • Mr Woolard suggested that there had been a “mixed package” of directives, including various measures that would have been on the EU’s agenda regardless.
  • Adding to this, Mr Lawton said that measures dealing with “too big to fail” and the liquidity of banks had been successes.
  • On what could have been done differently, he suggested that inconsistencies might be found in the legislation in future years.
  • Mr Lawton argued that there were inconsistencies between EU and American regulations, especially with regard to the derivatives agenda.
  • Another area for concern related to liquidity provision in bond markets, he said, as it was unclear how different elements of the legislation would play out in combination.
  • Continuing, Mr Lawton identified the speed that some legislation was pushed through as a worry.
  • Answering a question on overlap of regulation, Mr Wollard said that the FCA could make EU legislation make sense in a UK context.

Capital markets

  • Lord Caithness asked about efficiency and security in capital markets.
  • In reply, Mr Lawton said that there was much greater competition in the trading of shares, and national pools of capital had been broadened.
  • He added that opening up capital markets would be integral to growth in the future, and the EU had this in its sights.
  • There was an opportunity to open up capital market access to SMEs, but there were also liability concerns to worry about, he explained.

Legislative process

  • Pressed on whether the European Commission could consult better, Mr Lawton said that the scale and timeframe at which directives had been delivered had inhibited consultation.
  • He argued that the ESAs were playing a vital role in helping develop and interpret legislation. Their resources had increased over the previous years, he said, but the scale of the challenge they faced was large.
  • The European rulebook was detailed, Mr Lawton agreed, but so were the national rulebooks it would replace.
  • He explained that the Level 2 legislation was technical and could be updated reasonably often, so that it could be changed as markets evolved.

Written evidence to the Committee for its review of the EU financial regulatory framework is published here.

European Scrutiny Committee

Lord Hill gave evidence to the European Scrutiny Committee yesterday. Topics of discussion included the EU Budget, UK/EU relationship, Banking Union, the Financial Transaction Tax, bankers’ bonuses and capital markets union.

Key points:

The UK’s EU membership

  • Lord Hill said that Britain was best served by being part of a trading block of 500 million people and the European single market.
  • There were geopolitical, diplomatic and trade agreement advantages to the UK’s membership, he added.
  • Continuing, he said that the EU would be stronger if it were able to address its democratic deficit, stating that many of the UK’s concerns were stressed and shared across the EU.
  • It would also be made stronger if the subsidiarity principle were appropriately enshrined, he believed.
  • It was incumbent on financial institutions to explain some of the benefits they reaped from the EU, he added.
  • Pressed on whether the UK should be able to override European legislation in some cases, Lord Hill said that he agreed that national parliaments should be sovereign, but that if they were able to override EU directives it would instantly lead to the breakdown of the Union.

Strengthening the EU

  • He said he hoped to improve the economic performance of the EU by improving “its plumbing”, pointing out that the City was of the opinion that the UK benefitted from its membership.
  • Lord Hill argued that European Commission President Jean-Claude Juncker was serious about addressing the “big questions” without interfering needlessly in the “smaller questions”, which was signalled by the appointment of First Vice-President Timmermans to look at this.
  • He was personally keen to extend the single market for retail products, he said, indicating he wanted to bring down costs for consumers.

Conflict of interests

  • The financial services commissioner had to come from either a euro-in or a euro-out country, he replied. It was his role to uphold the security of the single market, and build trust between the euro-ins and euro-outs, Lord Hill explained.
  • Asking the next set of questions, Jacob Rees-Mogg enquired about his relationship to London, and whether there was a danger Lord Hill might overcompensate and fail to give the City adequate interest.
  • “The proof of the pudding would be in the eating”, he responded. His approach – as he made clear to the European Parliament – will be to act in the interest of the 28 Member States
  • Lord Hill agreed that there had been doubts about his close relationship to the City, but said that he would speak to all the people who could advise him on changes to the regulatory environments to their businesses.
  • He said that he believed in markets but that some regulation was necessary, adding that of rules were intelligent and proportionate regulation then that will be good for the European economy.

Financial Transaction Tax

  • Pressed for a view on a financial transaction tax, Lord Hill indicated that if there were to be an FTT then it should be applied at a global level.
  • He noted that the Commission had put a proposal forward but that there was not currently a consensus on this, and therefore was unsure what future developments there might be.
  • Describing it as “a highly contentious issue”, Lord Hill said that he would look at the matter from a variety of perspectives, including financial stability and the operations of financial markets.

Bankers’ bonuses

  • Asked by Mr Rees-Mogg why responsibility for bankers’ bonuses was not in his portfolio, Lord Hill said that a number of issues relating to corporate governance had been grouped together under one portfolio
  • He had no complaints about this, he revealed.

Capital Markets Union

  • One of the challenges at the moment – partly due to the changes in banking regulation – is that there are areas where SMEs find it difficult to get hold of capital for investment, Lord Hill explained.
  • The starting point for a capital markets union should be analysis in member states, he argued, indicating that he would be open to contributions from a wide range of stakeholders on the matter.
  • Continuing, he said that the risks of a union would include not properly understanding the risks that affected small businesses. However, a larger risk is SMEs not accessing the capital they need. If these businesses grow then that would help unemployment, he added.
  • Comparing the US and EU markets, it was important to increase access to finance from a broader range of sources in order to mitigate risk ad to encourage more investment, he argued.

Banking Union

  • Lord Hill explained that of his tasks is to make sure that he reconciles the interest of the “ins” and “outs”, and make sure the integrity of single market is preserved. Double majority voting is one practical way of providing reassurance to those inside of the Banking Union and those outside.
  • He said that he didn’t know how large Banking Union would be, but noted that Lithuania is due to join the euro and the Union.

Treasury Select Committee

The Treasury Select Committee opened its inquiry into the proposals for further fiscal and economic devolution to Scotland. Over the two hearings the Committee discussed Corporation Tax, devolution of tax and complexity of the tax system.

In the first session the Committee heard from Paul Johnson, Director at Institute for Fiscal Studies (IFS) and David Phillips, Senior Research Economist at IFS. Topics of discussion included the Barnett Formula, Corporation Tax, a future Scottish tax system and the block grant.

Key points:

Reforming the Barnett formula

  • Opening the session, Conservative Committee Chair Andrew Tyrie asked if any new fiscal powers had been ruled out of devolution talks that should have been left on the table.
  • In reply, Mr Johnson referred to the Barnett formula and noted how factors such as the relevant performance of business rates could affect the funding Scotland received by millions of pounds. He felt that detailed areas of the formula should be left on the table to reconsider.
  • Moving to a system of full taxation devolution would present the strongest case for Scotland bearing the risk of all revenue raised, Mr Phillips said, adding that a block grant could need to be maintained to ensure that the nation was not running a fiscal deficit.
  • He felt that partial devolution should have a system that allowed Holyrood to benefit from sound fiscal management whilst not bearing subject to the risks of recession.

Corporation Tax

  • Mr Phillips said that the allocation of tax bases between countries for Corporation Tax (CT) could be done using a formula based on the payroll and the presence of physical assets.
  • He subsequently outlined that a more formal framework for devolution of CT could lead to greater variation. There were lots of international examples that could be drawn on for countries coping with different tax rates.
  • Mr Phillips added that devolution of CT was a political decision and that other nations would undoubtedly also want it to be devolved if Northern Ireland did receive it.
  • Mr Phillips felt that politicians should consider how to devolve CT whilst encouraging the devolved nations to improve their economy and also reducing the block grant.

During the second hearing the witnesses were Patrick Stevens, Tax Policy Director at Chartered Institute of Taxation (CIOT), Chas Roy-Chowdhury, Head of Taxation at Association of Chartered Certified Accountants (ACCA) and Frank Haskew, Head of Tax at Institute of Chartered Accountants in England and Wales (ICAEW). The Committee discussed Corporation Tax, devolution and the tax code, HMRC and complexity of the tax system.

Key points:

Corporation Tax

  • Petroleum Revenue Tax (PRT) should be devolved to Holyrood along with corporation tax, Mr Roy-Chowdhury said, explaining that there were uncertainties over the revenue associated with the tax.
  • Mr Stevens emphasised that PRT was a “good candidate for devolution” because the administration of the tax was carried out by one unit in London. He agreed with Mr Roy-Chowdhury’s point about the interaction with CT.

Devolution and the tax code

  • “The more tax that was devolved […] the greater the complexity that arises”, Mr Stevens said, noting that income tax on employment income could be among the first elements devolved. Any additional taxes devolved would present further complexity.
  • Pressed by Alok Sharma MP over the exact nature of taxation devolution, he added that further devolution could only add further complexity to the tax system. Mr Roy-Chowdhury posited that stamp duty and other revenue streams could be devolved.

Written ministerial statement

Chancellor George Osborne issued the following written ministerial statement following the announcement of the Fair and Effective Markets Review consultation:

“Wholesale fixed income, currency and commodity (FICC) markets underpin major financial transactions in the global economy. These markets also play a vital role in determining the costs of borrowing for households, business and government, exchange rates, and commodity prices that affect the real economy in Britain. In recent years we have seen abuse and misconduct in FICC markets, and allegations continue to circulate. The Government is determined to take action to help restore trust and integrity and to ensure that the highest standards are expected of those who operate in these markets FICC markets. It is important that this is done in a way that preserves the UK’s position as the global financial centre for many of these markets, with all the jobs and investment that brings.

“Action has already been taken both domestically and in the EU to respond to recent market abuses by regulators, legislators and market participants. In the EU, key changes to the regulatory structure have been agreed under MiFID 2 and the Market Abuse Regulation. Domestically, as well as enforcement action taken by the Financial Conduct Authority (FCA), the Government has taken steps to ensure that robust measures can be taken to tackle abuse and raise standards. This includes legislation to introduce a new criminal offence imposed on people who manipulate the LIBOR benchmark, and legislating to implement recommendations from the Parliamentary Commission on Banking Standards. The Government has also launched a consultation on extending the new legislation put in place to regulate LIBOR to cover further benchmarks in these markets, including benchmarks in the markets for gold, silver, crude oil and foreign exchange.

“These are important steps, but the Government is committed to go further in ensuring that markets are fair and effective for the British economy. The Government welcomes the progress that has already been made by the Fair and Effective Markets Review. The consultation document ‘How fair and effective are the fixed income, foreign exchange and commodities markets?’ published on 27 October is comprehensive, balanced and rigorous and asks the right questions on what needs to change to address recent misconduct and reinforce fairness and effectiveness in these markets. The consultation document is available on the Gov.uk website. The Government looks forward to the Review’s final recommendations in June 2015.”

Ministerial Questions

Ministers answered questions on financing terrorism, the Enterprise Finance Guarantee Scheme, Venture Capital, Interest Rate Swap Transactions and EU Anti-Money Laundering Directive.

Key dates for the week ahead:

3 November

House of Commons: Foreign Affairs Committee – Lord Hill

4 November

House of Commons: Treasury Oral Questions

House of Commons: Treasury Select Committee – Proposals for further fiscal and economic devolution to Scotland

House of Lords: Lords EU Sub Committee (Economic and Financial Affairs) – Review into the EU financial regulatory framework

5 November

House of Commons: Treasury Select Committee – Treatment of Financial Services Consumers

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This week in Brussels https://www.bba.org.uk/news/banking-matters/this-week-in-brussels-18/ https://www.bba.org.uk/news/banking-matters/this-week-in-brussels-18/#comments Fri, 31 Oct 2014 14:23:00 +0000 https://www.bba.org.uk/?post_type=news&p=33034 Read More]]> The Commission takes office on Saturday

The new Commission College takes office this weekend, on 1 November, as initially planned.

After ten years in office as European Commission President, Jose Manuel Barroso gave his last press conference on Wednesday. Looking back at his two mandates which saw one of the worst economic crisis in decades, he said today there is “a stronger EU which is better equipped to face the challenges of the future.” The Barroso Commission will probably be remembered for its handling of the crisis and the biggest EU enlargement in history. In terms of financial services legislation, the Barroso Commission leaves an extensive reform of more than 40 pieces of regulation, among which those that established the Banking Union.

As for the new Commission, we gradually learn more about Cabinet appointments. Matthew Baldwin was already appointed as Head of Lord Hill’s Cabinet some weeks ago. Media now reports that Nathalie de Basaldua, previously head of unit at DG Markt, will be Baldwin’s Deputy. The same sources point at Mette Grolleman (former Danish financial attaché in Brussels), Sebastian Kuck (from DG Competition) and Denzil Davidson (the Conservative Party’s policy adviser) as other Cabinet new members. Chantal Hughes who was Michel Barnier’s spokesperson will also be part of Lord Hill’s inner circle.

The new Commission’s communications are changing drastically. Previously, each Commissioner had their own spokesperson, which was somewhat criticised: spokespeople were seen as representing their own Commissioner’s interests rather than the interest of the Commission as a whole. Jean-Claude Junker has therefore restructured all the Commission’s communications service. Spokespeople will be now assigned a thematic field, and will now answer to a cluster of Commissioners. For instance, Margaritis Schinas who was appointed Chief Spokesperson, will deal with issues concerning ‘growth and jobs’ and will thus answer to Pierre Moscovici, Jyrki Katainen and Valdis Dombrovskis according to European Voice. The former Brussels correspondent of the Wall Street Journal will become in turn the new ‘finance’ spokesperson. Commissioners are however free to assign communications responsibilities to someone in their Cabinet – and we expect Chantal Hughes to fit that role – but they will no longer act as media-facing spokesperson.

Twenty four EU banks fail EBA stress tests

The European Banking Authority (EBA) published its stress test results last Sunday, aimed at assessing “the resilience of EU banks to adverse economic developments, so as to understand remaining vulnerabilities, complete the repair of the EU banking sector and increase confidence.” While all the UK banks passed the test, twenty four banks out of the 124 scrutinised across Europe failed their health check. While ten of them were already taking measures to raise capital, the remaining 14 – among which four Italian banks, two Greek banks, two Belgian banks and two Slovenian banks – have now nine months to fill in the shortfalls. The worst affected was Italian bank Monte dei Paschi, which had a capital shortfall of €2.1 billion.

UK banks are now facing Bank of England’s stress tests, which results will be published on 16 December.

Key dates for the week ahead:

1 November

New European Commission takes office

4 November

Trilogue on the fourth Anti-Money Laundering Directive

European Parliament: ECON exchanges views on  Banking Structural Reform and Securities Financing Transactions proposals

European Parliament: Neena Gill MEP holds a stakeholders’ hearing on Money Market Funds

5 November

Trilogue on European Long Term Investment Funds

6 November

High level Conference on “Finance for Growth – Towards a Capital Markets Union”

7 November

ECOFIN: State of play on the FTT, orientation debate on Standard VAT return and Common Consolidated Corporate Tax Base

ECOFIN: proposal for a general approach on MIFs

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Forward Look https://www.bba.org.uk/news/banking-matters/forward-look-16/ https://www.bba.org.uk/news/banking-matters/forward-look-16/#comments Fri, 31 Oct 2014 14:20:41 +0000 https://www.bba.org.uk/?post_type=news&p=33031 Read More]]> Weekend:

New European Commission takes office

Monday:

House of Commons: Foreign Affairs Committee – Lord Hill

ICAEW: Quarterly business confidence monitor survey

Tuesday:

House of Commons: Treasury Oral Questions

House of Commons: Treasury Select Committee – Proposals for further fiscal and economic devolution to Scotland

House of Lords: Lords EU Sub Committee (Economic and Financial Affairs) – Review into the EU financial regulatory framework

Trilogue on the fourth Anti-Money Laundering Directive

European Parliament: ECON exchanges views on  Banking Structural Reform and Securities Financing Transactions proposals

European Parliament: Neena Gill MEP holds a stakeholders’ hearing on Money Market Funds

Wednesday:

House of Commons: Treasury Select Committee – Treatment of Financial Services Consumers

NIESR: Economic Review

Trilogue on European Long Term Investment Funds

Thursday:

Bank of England: Monetary Policy Committee meeting and announcement

High level Conference on “Finance for Growth – Towards a Capital Markets Union”

Friday:

HMRC: Monthly UK overseas trade with EU

ECOFIN: State of play on the FTT, orientation debate on Standard VAT return and Common Consolidated Corporate Tax Base

ECOFIN: proposal for a general approach on MIFs

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Proposed reforms to interchange fees unlikely to save consumers money https://www.bba.org.uk/news/bba-voice/proposed-reforms-to-interchange-fees-unlikely-to-save-consumers-money/ https://www.bba.org.uk/news/bba-voice/proposed-reforms-to-interchange-fees-unlikely-to-save-consumers-money/#comments Fri, 31 Oct 2014 12:15:06 +0000 https://www.bba.org.uk/?post_type=news&p=32848 Read More]]> The European Commission is considering plans to introduce a cap on multilateral interchange fees (MIFs), charges paid for card transactions between the merchant and the buyer’s bank.

Under the plans, EU member states would be allowed to cap MIFs at 0.2% of the transaction value for debit cards, and 0.3% for credit card payments.

The Commission says that the plans will achieve “legal clarity and a level playing field” by developing an EU-wide market for payments, enabling consumers and retailers to benefit from the EU internal market, including e-commerce.

The Commission also argues that price increases caused by interchange fees are harmful to consumers. Setting out its priorities for the coming six months, the Italian Presidency of the Council of the European Union said it wanted to align the regulatory framework for the payments system with new technology and make sure that efficiency gains were passed on to consumers.

However, there are reservations about whether capping interchange fees will further develop the e-payment market, as the Commission hopes.

The European Banking Federation says there is evidence to suggest that in countries where interchange fees have been reduced or capped, such as Spain and Australia, consumers did not receive the intended benefit of the cap as retailers did not pass on savings.

The Federation also warns that in some countries, the cap may have discouraged the use of electronic payments in favour of cash, further proof that consumers are unlikely to benefit from the proposed moves.

Research by Ipsos MORI[1] found that 59% of high value retailers would use the money saved from a cap to innovate or invest in their business, rather than reduce retail prices.

The UK Cards Association believes that interchange fees are necessary and desirable for a healthy cards market as they play a role in ensuring that investment can be made in keeping payment cards secure, preventing fraud and fuelling innovation. In the UK interchange rates have reduced over the past decade. If successfully implemented, the changes are expected to come into effect in 2015/16.

The industry believes that the effects of the proposed cap are likely to mean a card payments system which, in the future, looks and feels very different, with potentially less to invest in fraud prevention, innovation and competitive offers to consumers.

[1] https://www.ipsos-mori.com/Assets/Docs/Polls/Attitudes%20to%20Interchange%20Fees%20Factum%20EU.pdf

 

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BBA Brief – 31 October 2014 https://www.bba.org.uk/news/bba-brief/bba-brief-31-october-2014/ https://www.bba.org.uk/news/bba-brief/bba-brief-31-october-2014/#comments Fri, 31 Oct 2014 10:08:31 +0000 https://www.bba.org.uk/?post_type=news&p=33020 Read More]]> Announcement on leverage ratio

Bank of England is expected to announce the results of its review of the leverage ratio today. The Telegraph (B1) reports that the Bank’s Financial Policy Committee could increase the safety net to 4% or 5% for “systematically important” banks – higher than the 3% proposed by the Basel Committee on Banking Supervision, the international watchdog.  The Times (£, p53) said that these measures could result in banks and building societies granting fewer mortgages or increasing interest rates for homeowners. There is also speculation that these moves could encourage risky lending. This is because, unlike current bank buffers, leverage ratios are not adjusted for the safety of a bank’s loans. The Bank has admitted that building societies, which are more exposed to mortgages, could disproportionately suffer.

Commenting on the impact of such an announcement, chief executive of Secure Trust Bank, Paul Lynam told the Times: “The reality of this change is that banks will either have to accept lower returns on equity, or the cost of financial products, such as mortgages, will have to rise. I think the latter is more likely than the former.”

The Telegraph gives closer examination of what to expect from the Bank’s announcement here.

Here the BBA’s Simon Hills examines the damage a UK leverage ratio could do to the sector.

Growth of shadow banking

CityAM (p1) reports figures from the Financial Stability Board (FSB) that show shadow banking grew by $5 trillion (£3.1 trillion) worldwide last year and took over from banks as the main source of lending. The shadow banking sector includes a wide range of institutions which offer bank-like services, including money market funds, finance companies and real estate investment funds. According to the article the figures could be even higher as they don’t take into account offshore hedgefunds. Over the same period the banking sector’s assets stayed flat. The FSB welcomed the boost to lending, but earlier in the month the International Monetary Fund warned that shadow banking could be a potential source of risk to the financial system. The FT (£, p22) says that the strongest growth from a large economy came from China, which is now home to the third biggest shadow banking sector after the US and the UK. The article suggests that the reason for such growth in shadow banking globally is because the banking sector is being shrunk by regulation.

Yorkshire and Clydesdale could float

The Times (£, p48) writes that the National Australia Bank (NAB) could be making its exit from the UK as it looks to float subsidiaries Yorkshire Bank and Clydesdale Bank. In the wake of PPI and IRHP losses, NAB has worked to build a UK banking business but says that it is considering “a range of options” for the UK division. Bank chief executive Andrew Thornburn told Reuters: “We have an intention to exit the UK”, saying that the bank’s focus would be New Zealand. The FT reports that the NAB has already begun offloading non-core business, including the partial sale of a £625 million non-performing commercial property loan book in the UK.

Today’s diary

Bank of England: Record of Financial Policy Committee meeting held on 15 October 2014

Bank of England: The Financial Policy Committee’s review of the leverage ratio published

Council Working Group meeting on Benchmarks

British Retail Consortium: Monthly economic briefing

Latest from the BBA

BBA Policy Advisor Nick Smith writes about the important role Private Banking and Wealth Management has had to play in supporting philanthropy. Read here.

Stat of the day

The US economy grew by 3.5% in the third quarter of the year.

In brief

The US authorities have reopened an investigation into whether Standard Chartered infringed sanctions and hid transactions in 2012. (FT, £, p1)

A number of high street banks including Barclays and RBS are setting aside money to settle foreign exchange rate rigging allegations following investigations launched by international regulators. (Mail, p2)

The US economy grew at the stronger-than-predicted rate of 3.5% in the third quarter, much better than the rise of 3% that economists had forecast. The increase supported the Federal Reserve’s moves to end quantitative easing and claims that there was “sufficient underlying strength” in the US economy. (Independent, p66)

The Times (£, p47) reports that British banks are among the City’s worst payers with not one featuring in the top ten for bonuses, according to a survey of 640 senior London-based bankers.

CityAM reported on Bank of England data that showed the housing market is slowing down. See the BBA’s response to the September Bankstats here.

Prime Minister David Cameron has said that he would like to keep interest rates low indefinitely but would not jeopardise the independence of the Bank of England. (Times, £, p2)

What the commentators say

In the FT (£, p13) Sir Richard Lambert writes that the banking industry needs to “lead and refresh the reputation of London as a place to do business.”

In the Guardian (p37) Edward Helmore examines the ways that financial institutions can help the unbanked in developing countries and the challenges they face following the “How to Bank Billions” conference in Washing DC.

If you get five minutes…

The Mail (p81) has put together a “30 second guide to Foreign Exchange” for its readers.

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Supporting philanthropy https://www.bba.org.uk/news/bba-voice/supporting-philanthropy/ https://www.bba.org.uk/news/bba-voice/supporting-philanthropy/#comments Thu, 30 Oct 2014 15:17:01 +0000 https://www.bba.org.uk/?post_type=news&p=32973 Read More]]> Private banks and wealth managers have a well-earned reputation for helping their customers manage their finances and plan for the future. One of their less well-known skills is advising their clients on how to give their money away.

Finding the best way to give large sums of money away to charitable organisations is not necessarily as straight forward as you might think.

Although people usually know which causes they want to support, determining how best to do so and in what way is often more complex. Private banks and wealth managers help their customers in this respect by working with them to understand what they want to achieve as well as the best means to deliver that vision.

Whilst most of us might drop money in a tin being rattled at a train station or sponsor a friend running a marathon in fancy dress, there are many ways in which people can support good causes. For those who want to give on a larger scale, the opportunities for making a difference can be more varied.

For example foundations, trusts or endowments can help create a focus for longer-term charitable giving, but these require careful planning to ensure they deliver the intended benefits. By advising on the most effective means of support, private banks and wealth management firms help their customers to make a lasting difference.

Advice on philanthropy has become an increasing part of what private banks and wealth managers do. According to a recent survey of customers of this sector carried out by Compeer for the BBA, a third of clients said they used their bank or wealth manager to help them with philanthropic activities.

This research also suggests that such giving is set to rise. One in four of those polled said that their philanthropic activities have increased in the past three years, with a similar proportion expecting to increase their philanthropic activity over the next three years.

Good advice is one of the most effective ways of maximising the support philanthropy offers to good causes. Private banks and wealth managers ensure that those who wish to give something back are able to do so safe in the knowledge that this is being put to the best use possible.

Find out more about the world of private banking and wealth management by reading the BBA’s recent report on the sector here.

Nicholas Smith is a Policy Advisor at the BBA, with responsibility for Private Banking and Wealth Management.

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BBA Brief – 30 October 2014 https://www.bba.org.uk/news/bba-brief/bba-brief-30-october-2014/ https://www.bba.org.uk/news/bba-brief/bba-brief-30-october-2014/#comments Thu, 30 Oct 2014 10:12:13 +0000 https://www.bba.org.uk/?post_type=news&p=32893 Read More]]> The Fed announces the end of QE

All the main papers reports that on Wednesday the Federal Reserve voted 9-1 to stop itslong running bond-purchase program at the end of October. As the FT reports (£, p1) in a marked change of language the Fed highlighted an improvement in the US labour market, dropping its previous view that there was significant “underutilisation” of labour resources. The Fed kept its forecast of low rates for a “considerable time” but made clear that the clock starts ticking now for a future rate rise. (Times, £, p48), (WSJ, £, p1) (Guardian, p26)

Lord Hill says that the EU should not introduce a unilateral financial transaction tax  

Lord Hill, Britain’s next European Commissioner has said a financial transaction tax should only be introduced at a global level, if at all.  He added that this is not a view shared by many in the EU. Read the joint BBA, CBI and EEF letter on the proposed financial transaction tax here.  (Telegraph, £, B1)

September mortgage approvals fall

The Bank of England Bankstats published yesterday reveal that UK mortgage approvals dropped to 61,267 in September, a 14 month low, adding to evidence that the housing market is cooling. The Bank of England data also showed the average interest rate on outstanding mortgages was 2 basis points down, to 3.2pc in September (Telegraph, £, B5). Commenting in the Daily Mail (p79) Richard Woolhouse, chief economist at the BBA, said: “We are now experiencing a steadier housing market, which is no bad thing given previous concern about the pace of property price rises.”

Stat of the day     

30% – The amount new lending to SMEs increased by in July-September 2014 compared to the same three months the previous year (Bank of England Bankstats)

Latest from the BBA

Alongside the benefits brought about by digital innovation and new ways to manage our money, the bank branch will continue to be a vital channel for consumers. The BBA’s Eric Leenders explains why.                                                                                                                                                 

Today’s diary

Council Working Group on Money Market Funds

US Bureau of Economic Analysis: Q3 GDP (advance estimate)

Nationwide House Price Index

Economist: European Retail Banking 2014

In brief

The FT (£, p2 & 22) covers a new ICAEW report highlighting the growing gap between the sophistication of cyber hackers and their targets. Read the BBA’s report on the cyber threat to the banking industry here.

The Daily Mail (p51) sets out top tips for avoiding cyber thieves online. See the BBA’s Know Fraud No Fraud advice leaflet here.

RBS has warned that thousands of people seeking payday loans have had a total of more than £1 million  taken from their bank accounts by “middlemen” acting as brokers for pay day lenders since July (FT, £, p4)

The FT (£, p6) reports that the ECB’s quarterly lending survey showed a net percentage of euro area banks reported an easing of terms on loans to enterprises as well as a 6% increase in net demand for credit from both business and households.

George Osborne told ITV News yesterday that he was “confident” that the UK could cut the UK’s £1.7 billion contribution to the EU budget. However while being questioned by MPs Lord Hill said that he could not say whether the bill should be reduced noting that it was not a “surcharge on Britain’s success” (Telegraph, £, p2)

Bank of England Chief Economist Andy Haldane has warned that the global monetary system has become so deeply interconnected that it poses a threat to stability, writes the Guardian (p28). In a speech at Birmingham University, he suggested that a new set of rules and tools at a multilateral level and a greater role for the IMF would be needed to lessen the risks posed.

The Times (£, p51) also reports that Haldane said that countries should be able to sell crisis bonds that would automatically hand national governments more time to repay creditors in the event of a financial crash.

Members of Plaid Cymru are to meet with Mark Carney to call for a “stronger Welsh voice” within the Bank, including giving the Welsh Assembly the power to nominate a member of the Monetary Policy Committee. (Evening Standard, p45)

What the commentators say

Satyajit Das suggests in the FT (£, p30) that new institutional arrangements and banking regulations have altered market structures in ways likely to amplify shocks in a future financial crisis. Das writes that “new regulations increase bank exposure to sovereign bonds” at a time of “deterioration in the quality of government securities and unprecedented low interest rates. Increased exposure to government bonds is now an increasing source of instability.”

Robert Peston writes for the BBC Online that the most striking thing about the end of QE in the US is how “anti-climatic it has all been.”

James Kynge writing in the FT (£, p6) looks at the implications of the end of QE for developing markets commenting that the Fed’s announcement yesterday represents “both a watershed an a leap into the unknown.”

Ambrose Evans-Pritchard looks at the differing approaches of the US Federal Reserve and eurozone and the ECB to the financial crisis commenting that “as the US Federal Reserve winds down QE3 we can at least conclude that the experiment was a huge success for those countries that acted quickly and with decisive force.” (Telegraph, £, B2)

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A banking (r)evolution https://www.bba.org.uk/news/bba-voice/a-banking-revolution/ https://www.bba.org.uk/news/bba-voice/a-banking-revolution/#comments Wed, 29 Oct 2014 15:21:48 +0000 https://www.bba.org.uk/?post_type=news&p=32854 Read More]]> With all of the attention that bank branch closures have been getting in the media lately, it is important that we remind ourselves of the question that really must be answered – is there an acceptable level of access to banking in the UK that ensures no one is financially excluded?

Technology is changing both the way we live and the way we bank, and the BBA report, “The Way We Bank Now” explores this further. But while the banking industry has responded to the change in our banking behaviour, there are still customers that prefer to use a bank branch.

So with all of the innovation happening in the banking industry, we cannot forget about financial inclusion. As Business Secretary Vince Cable said, “As banks continue to modernise we must ensure that people in rural and smaller communities in particular have access to the banking services they need”.

The problem when considering this question is, if we limit ourselves to focusing only on access to bank branches, we ignore the range of different ways that we are able to bank now.

My colleague Matthew Herbert recently discussed banking behaviour and the range of channels available to us in his blog Branch banking by numbers”.

When it comes to financial inclusion through access to ‘over-the-counter’ banking services, he notes that transactional banking services are available through the combined network of bank and post office branches that total over 20,000 physical locations. But what does this mean for people who are more vulnerable to bank branch closures because of their reliance on the local branch?

Some of the demographics that most rely on bank branches include individuals over the age of 65, people on low incomes, and individuals with disabilities. When considering their access to these physical banking services alone, we see that almost 100% live within three miles, and between 92-98% live within a mile of the combined branch network.

However, we cannot overlook the emotional connection that some customers have with their local bank branch. But what the industry can focus on doing is to ensure that those people are aware of, and have access to, other convenient ways to bank that suit their needs.

The bank branch will continue to remain a vital channel for banking in the future. In fact, the competition in this sector is clear. Banks such as Metro, Handelsbanken, and TSB continue to invest in opening branches throughout the UK as part of their competitive offering to their customers. While others, such as First Direct and Atom Bank are focused more providing customers with a modern digital experience. So, while Lloyds is retrenching some of their branch network, they also plan to open 50 new branches, along with investing a further £1.6 billion in digital services and innovation.

All of this goes to show that customers see branches differently from one another and so does each bank. The industry is responding to the evolution of customer demand, and we are getting a more diverse banking landscape as a result. However, we must ensure that this innovation does not come at the cost of financial inclusion, and that appropriate access to banking services remains.

Eric Leeders is the BBA’s Executive Director of Retail and Private Banking. 

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