BBA The voice of banking Thu, 18 Dec 2014 12:23:48 +0000 en-US hourly 1 Helping those the missing leave behind Thu, 18 Dec 2014 12:19:04 +0000 Read More]]> The disappearance of a friend or family member will always be a distressing experience. The pain and stress caused by not knowing where the person is, whether they are well or when they might return are clear.

Making matters worse, such a disappearance can also have difficult practical consequences. The law in England and Wales assumes by default that a missing person is alive. Generally speaking, this means that no one can legally manage the missing person’s financial affairs in their absence, unless there is a power of attorney in place. This can mean that debts go unpaid and the missing person’s family might not be provided for. Despite wanting to help, banks can be unable to even give relatives information about the missing person’s accounts.

The Ministry of Justice recently consulted on the guardianship of property and the affairs of missing persons. The Ministry is considering a new model of “guardianship”, under which a person could be appointed by the court to manage the affairs and property of a missing person. Any actions by this guardian would need to be in the best interests of the missing person, and there would be a supervision framework to ensure that this rule was followed. The appointment would be for up to four years, with the possibility of an extension.

A regime along these lines could go a long way to making such difficult situations a little easier. Nonetheless, there are still some important details to work out:

  • Good controls will be needed, including protecting the privacy of the missing person.
  • Effectively managing a missing person’s affairs might involve refinancing a loan. However, it’s unlikely that lenders could comply with their responsible lending obligations when dealing with a guardian, meaning they couldn’t provide credit.
  • What should happen when a missing person returns?
  • The system needs to be kept simple. It needs to be clear to banks and other third parties what actions a guardian can and cannot take, and what accounts they can and cannot access.


Once these issues have been worked through, a guardianship regime would be a positive development. The Ministry will publish its response to the consultation by 10 February 2015. The BBA awaits its recommendations with interest and is happy to assist.

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BBA Brief – 18 December 2014 Thu, 18 Dec 2014 10:06:30 +0000 Read More]]> EU agrees deal on card fees

The EU last night reached an agreement to cap fees to process debit and credit card transactions, writes the FT (£). The new rules place a ceiling of about 0.2% for debit card rates and 0.3% for credit cards. Margrethe Vestager, the EU competition commissioner, said: “This legislation is good for consumers, good for business, and good for Europe. It will lead to lower prices and visibility of costs for consumers.” However, the paper states that banks have argued that consumers will face higher upfront bank fees as a result of the legislation. The draft deal will need to be formally approved by the European Parliament and EU members states early next year.

Government to offload more shares in Lloyds

George Osborne has announced that the Government will reduce its holding in Lloyds Banking Group from 25% to 20% in the run-up to the General Election (FT, £, p4). The Chancellor hopes to raise £3 billion through the sale, although shares will not be sold below 73.6p – the average price that was paid when the Labour government bailed out the bank. The Telegraph (B1) states that the sale – which “came as a surprise to many in the City” – will mean that £10.4 billion of the £20.5 billion of taxpayer funds will have been paid back. The Times (£, p47) notes that the trading plan could see a “few million shares sold every day”.

EU announces tougher rules on research fees

EU regulators have agreed rules on the way broker research is paid for, reports the FT (£, p21). Details of the rules will be announced tomorrow. The Financial Conduct Authority has previously stated that separating the costs of research and dealing commissions would encourage greater competition and transparency over the price of research. However, the article cites an Extel poll from last month which suggests that preventing banks from combining fees would “affect the ability of small-cap companies to access the capital markets”.

Fed hints at rate rise

The Federal Reserve has signalled that it expects to tighten monetary policy in mid-2015, reports the FT (£, p1). The rate setting committee dropped its forecast that rates would remain low “for a considerable time”, but added that it would be “patient” in judging when to start the rise. In addition, the Federal Open Market Committee changed its forecast of rate rises in 2015 and 2016, expecting rates of between 1% and 1.25% by the end of 2015, rather than 1.25% and 1.5%. As a result, the Fed now expects interest rates of 2.5% by the end of 2016. However, the Independent (p56) writes that the announcement left “financial markets scrambling to make sense of its meaning”.

Today’s diary

House of Commons rises for recess

CML mortgage lending figures

European Council endorses Juncker’s Investment Plan

Latest from the BBA

As inflation continues to undershoot expectations and growth in Europe remains weak, what more can monetary policy do, asks BBA Chief Economist Richard Woolhouse.

Latest from our sponsor Jaywing:

The Bank of England stress test results indicate the success of the 2014 exercise, but the Bank is likely to remain cautious given concerns over interest rates and housing market shocks. There are hints that the bar will be set higher for its 2015 stress tests, and the net could be cast wider in 2016 with improvements sought in data accuracy and modelling approaches. Using our significant stress testing experience we’ve produced a white paper ‘Stress Testing: What you need to know.’ Find out more here.

Stat of the day

36% – the intraday fall of the rouble on “Black Tuesday”.

In brief

The FT (£, p2) writes that the Government has set up a specialist unit to tackle bribery and corruption in the City.

The Swiss National Bank has cut interest rates on deposits to -0.25pc in an effort to curb its strengthening currency, reports the Telegraph.

Prime Minister David Cameron will use a Brussels summit today to “demand fresh impetus” in talks on the Transatlantic Trade and Investment Partnership deal (FT, £, p2).

The FT (£, p6) reports that the rouble rose by 12% yesterday as the Russian central bank announced measures – including looser capital requirements and liquidity injections – to support the currency.

According to the Telegraph (p2), France’s President Hollande will dismiss Mr Cameron’s request for a change to the EU treaty at today’s European Council summit.

Shares in online lender OnDeck rose 33% on its first day of trading, a week after peer-to-peer lending platform Lending Club increased by 60% on the day of its IPO (FT, £, p18).

Both pay measures (excluding and including bonuses) in October rose at a faster pace than inflation for the first time since June 2008 (Telegraph, B1).

What the commentators say 

In the Independent (p60), Hamish McRae welcomes the fall in oil price as it “injects additional real demand into the world economy”.

If you have five minutes…

In an interview with the FT (£, p21), Barclays CEO Anthony Jenkins points to the importance of investing in technology to not only cut costs, but to gain a competitive advantage.

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The ECB – preparing the ground for sovereign QE, but will it help? Wed, 17 Dec 2014 15:48:21 +0000 Read More]]> Back in the summer I wrote about the ECB’s latest package of credit easing measures, including measures designed to reduce the cost of funding for banks that lend on, the new targeted long-term refinancing operations (TLTROs) – similar to the UK’s Funding for Lending Scheme (FLS) – and a move to negative interest rates.  I said back then if the economy continues to recover then expect the ECB to stop here, but if inflation falls further or the recovery looks to be stalling then do not underestimate Mr Draghi’s determination to “do whatever it takes”, even if that means implementing full blown QE.

Since then inflation has continued to undershoot expectations, and growth remains very weak. In recent months a number of executive committee members (particularly the President) have made it very clear that they stand ready to do more and this debate has played out in public, particularly between Draghi and Weidmann.

I was in Frankfurt earlier this week and joined an off the record briefing with Mr Peter Praet, ECB executive board member.  I am not going to cover anything specific that was discussed, but would recommend you read his speech from last week given at the Pietersen Institute in Washington, titled “Current issues in monetary policy” or listen to it here.

There he lays out clearly the current thinking in the ECB governing council and suggests they have already made a shift to the stance that “more stimulus is needed” given the recent further downgrades in the economic outlook.  In particular the risks are building that low inflation will prompt a self-feeding further decline in activity and will constrain the ability of the euro area to make the adjustments that are needed.

That begs the question of what more can monetary policy do?  Recent take-up of TLTROs has been disappointing (suggesting demand for credit remains weak) and whilst many believe that the overall programme of credit easing (purchases of covered bonds, the non-risky tranches of ABS and potentially corporate bond purchase) does provide the ECB with more bang for its euro than sovereign QE would in terms of the impact on the real economy. The problem is that with the EU economy’s capital markets are much less developed than those in the US, and the tools it has are limited in terms of the size of their impact.

Many have stated that a focus on sovereign bond purchases is missing the point and rather naïve. However it is getting to the point where that is the last tool left in the monetary box. What is clear is there are now active discussions about what a sovereign QE programme might look like. They could choose to limit credit risk and only purchase triple A rated sovereign bonds (which would still include France (just) or they might do what always seemed logical and purchase in line with the so called “capital key” – broadly in line with GDP weights. The latter approach would raise issues of moral hazard, particularly in Germany and it is not yet clear if Mr Draghi will move without an agreed consensus.

With bond yields already so low (largely already discounting such a policy move) this leaves the ECB in a bind. The macroeconomic impacts of such a programme are likely to be quite limited. There will be a portfolio allocation effect which will further reduce risk premia in other asset classes, the main effect will probably be felt via the exchange rate.  The ECB needs to signal to economic actors that they still have things they can do.  In the coming months with the further falls in the oil price it is very possible that headline inflation will fall below zero in the euro area and the ECB has to ensure that inflation is closer to 2% to ensure the necessary adjustments between the core and periphery can continue to take place.

Expect a QE programme to be announced (probably on January 22) but don’t expect it to have a big impact on the economy.  The Eurozone looks likely to be mired in slow growth with low inflation for many years to come.  This puts the sustainability of debt dynamics into question and will not help the growth outlook for the UK economy.

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Better lending conditions for businesses Wed, 17 Dec 2014 13:57:36 +0000 Read More]]> Commenting on the Bank of England’s Agents’ Summary of Business Conditions, BBA Chief Economist Richard Woolhouse said:

“Today’s agents’ summary makes it clear that credit conditions are improving.  In particular, lending to smaller firms appears to be increasing and some sectors where credit had previously been very tight are now able to access bank finance more easily.

“That’s very important. We need businesses of all sizes to be confident about borrowing because that helps them invest and supports economic growth.

“The summary also underlines that the Mortgage Market Review is considered to be behind the slowdown in the housing market and supports the view that new regulation is partly responsible for this cooling.”


For more information please contact the BBA press office on 0207 216 8989

You can read the BoE report here:

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BBA Brief – 17 December 2014 Wed, 17 Dec 2014 10:29:32 +0000 Read More]]> Bank of England warning on emerging markets

Mark Carney has vowed to put banks’ emerging market exposures under scrutiny in Britain’s next round of stress tests (FT, £, p17). Dr Carney warned that new financial stability risks were brewing overseas, and there was a danger of a “sharper adjustment” in emerging nations that could rebound into core markets. In a press conference yesterday, he said: “You can expect we will look towards some of those global risks much more closely – they will figure more prominently.”

Agreement reached on Fourth Anti Money Laundering Directive

An informal agreement has been reached on the EU’s fourth Anti-Money Laundering Directiveon the prevention of the use of the financial system for money laundering and terrorist financing. The directive will oblige EU member states to maintain central registers listing information on the ultimate beneficial owners of corporate and other legal entities, as well as trusts. A BBA spokesman said: “It is important that there is consistency across the EU when it comes to tackling money laundering so we are pleased that politicians have agreed this important directive. It is crucial that the proposed rules allow for a proportionate, risk-based approach when it comes to complex matters like due diligence, handling customer data and examining the customer relationship. We will work with policy makers and regulators to implement these rules in a way that balances good customer service as well as a focus on reducing financial crime.”

Inflation falls again

Inflation fell to 1% in November as measured by annual growth in the Consumer Price Index, City AM reports (p2). Figures released by the Office for National Statistics yesterday revealed that inflation now stands at a 12-year low. The paper adds that the Governor of the Bank of England, Mark Carney, believes that inflation is likely to fall below 1% in the first six months of 2015. The Independent (p9) says the fall has given shoppers “an early Christmas present” as falling oil prices and supermarket price wars have pushed the rate down.

Russia faces financial crisis

The rouble fell by more than 11% yesterday after a failed intervention by the Russian central bank (FT, £, p1). As a result, investors piled into haven assets, pushing German bond yields to a record low. The paper quotes Sergey Shvetsov, deputy governor of the central bank, saying: “I couldn’t imagine even a year ago that such a thing would happen – even in my worst nightmares.” Yesterday Russian shoppers rushed to buy goods before the currency lost more value, while some banks ran short of cash as customers stocked up on dollars and euros, the paper writes.

Today’s diary

House of Commons: Treasury Select Committee – Autumn Statement – Chancellor George Osborne

House of Commons: Westminster Hall Debate – International money transfer charges – Dame Tessa Jowell

House of Lords rises for recess

Trilogue on Multilateral Interchange Fees

Latest from the BBA

Surviving stress: the Bank of England’s results today demonstrate that the UK’s banking system remains resilient, says BBA Executive Director Simon Hills.

StepChange’s Chief Executive Mike O’Connor welcomes the agreement on basic bank accounts, and says banks will be providing the plumbing for the nation’s lifeblood.

Latest from our sponsor Jaywing:

The Bank of England stress test results indicate the success of the 2014 exercise, but the Bank is likely to remain cautious given concerns over interest rates and housing market shocks. There are hints that the bar will be set higher for its 2015 stress tests, and the net could be cast wider in 2016 with improvements sought in data accuracy and modelling approaches. Using our significant stress testing experience we’ve produced a white paper ‘Stress Testing: What you need to know.’ Find out more here.

Stat of the day

102 – The number of Russian roubles to £1 sterling (Daily Express).

In brief

The Telegraph (B5) reports that the five biggest threats to the UK economy outlined by the Bank of England in its Financial Stability Report are tumbling oil prices, a housing bubble, geopolitical risks, the Eurozone crisis, and the banking system and cyber threats.

Paul Sharma, former deputy head of the Prudential Regulation Authority, has said he expects regulators to tighten up capital rules on big banks and move their risk weightings closer to those faced by challenger banks (City AM, p5).

Under plans by the Financial Conduct Authority, banks and insurers will have three business days to solve financial complaints before the Financial Ombudsman Service can step in. Presently, customers have to wait up to eight weeks before the FOS can become involved (Daily Mail, p46).

The Second Permanent Secretary at the Treasury, Sharon White, has been named as the next chief executive of telecoms and media regulator Ofcom. Ms White will take up her new post in March 2015 (FT, £, p3).

Lenders are more concerned with paying back European Central Bank loans than increasing their war chests for lending, and will pay back €245 billion (£194 billion) in earlier loans next year despite borrowing €212 billion (£168 billion) under the ECB’s latest liquidity injection (FT, £, p32).

The Daily Mail says Christmas shoppers are turning to payday lenders because they “wrongly” believe that their bank won’t help them (p48). The paper quotes a BBA spokesman as saying: “We recommend that if customers have short-term borrowing requirements or are struggling with their finances they speak to their lender as soon as possible to get help and advice. Across the board in recent years overdraft charges have plummeted by nearly £1 billion.”

Giving evidence to the Treasury Select Committee yesterday, departing FCA head of supervision Clive Adamson admitted that the regulator had “blind spots” over its power to move the markets and its own crisis management skills (Telegraph, B3).

Goldman Sachs has predicted that nearly $1 trillion (£636 billion) of new oil and gas projects could be shelved because they are not economic at today’s oil prices (Times, £, p43).

In response to new rules from the Financial Conduct Authority, payday lender Wonga has capped interest rates on its loans at 0.8% per day (City AM, p8).

The European Commission presented its 2015 Work Programme to MEPs in Strasbourg yesterday. The new programme will withdraw 80 pending proposals and initiate just 23 (European Voice).

Japan’s largest banks, including Mitsubishi UFJ Financial Group (MUFG) and Mizuho Financial Group Inc, are looking to bolster their presence in India, following Prime Minister Narendra Modi’s pledge to restart growth and attract foreign investment (Economic Times).

What the commentators say 

Writing in the Times (£, p41), Ed Conway says the Bank of England’s stress tests were designed to demonstrate that Threadneedle Street is “alive to financial stability risks” and to “give the banking system yet another kick up the backside”. He adds: “That Britain’s financial system is safer today is as much down to banks’ shareholders and depositors as to Whitehall”. Mr Conway also calls on politicians and regulators to be “bolder” after the next financial crisis, “whenever that happens.”

Also commenting on yesterday’s stress tests, Nils Pratley (Guardian, p21) describes the results as a “triumph of sorts” and says people should be reassured that the big UK lenders can withstand “a 35% fall in house prices in the UK, a deep recession and a surge in unemployment”. However, he warns that the next dangers lie overseas and the real market risk is the Kremlin’s reaction to the rouble’s decline.

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Vanquis Bank Tue, 16 Dec 2014 15:59:52 +0000 Read More]]> Vanquis Bank is a specialist credit card company that uses its expertise to lend responsibly to the under-served credit market.  Since 2003 Vanquis Bank has given over 1.8 million people who are new to credit or who have been turned down for credit – and therefore may find it difficult to obtain credit elsewhere – the opportunity to build or rebuild their credit rating.  The bank also offers high yield savings bonds.  Vanquis is part of the Provident Financial Group.

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Plumbing for the nation’s lifeblood: deal on basic bank accounts will improve people’s access to banking Tue, 16 Dec 2014 13:44:06 +0000 Read More]]> Access to basic banking has become critical, not just to financial wellbeing and getting the best deal, but also sometimes to getting a job where employers want to pay salaries electronically. And of course the Government wants to reduce costs by paying social security benefits in the same way – the days of pensioners queuing at post offices with their pension books are passing. However providing such accounts is not very profitable, if profitable at all.  It has not been surprising therefore to see banks cutting costs and reducing account functionality, for example removing universal access to the LINK network.  The danger was a race to the bottom.  Therefore action to provide a minimum standard that banks must meet is welcome.

For the clients of StepChange Debt Charity, a functioning bank account which is not being hit with unfair charges and deductions is at the heart of recovery from problem debt.

Well done BBA, but it will be important that there is no gap between policy and practice, for example staff in branches are trained to provide basic bank accounts, and actually bring clients’ attention to basic bank accounts.  I would hope banks go beyond making a basic bank account “visible” as required by the agreement.  Banks should also ensure that financial incentives to sign people up to other accounts do not get in the way of people being made aware of basic bank accounts when this is the best choice for them.

The importance of access to modern financial services is such that banks are no longer good citizens if they simply abide by the law and pay their taxes. We now expect them to live up to a social duty as well, even if it costs them money. The utility industry lives with this, for example water companies cannot cut people off for not paying their bills and energy companies have to offer “social tariffs”.  Banks may fear what will be the next social obligation laid at their door, but providing the plumbing for the nation’s lifeblood means that this duty is here to stay.

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Surviving stress: the Bank of England’s results today demonstrate that the UK’s banking system remains resilient Tue, 16 Dec 2014 13:32:23 +0000 Read More]]> The results of the Bank of England’s stress testing of the UK’s eight largest banks were announced this morning. They confirm that the UK banking system remains resilient and even in the face of a severe stress could continue to provide the key functions for society of taking deposits, making loans and providing money transmission services.

The stress that the banks were subject to was a UK ‘add-on’ to the European stress tests completed in October and included a 35% drop in house prices from their end 2013 levels, a sharp rise in unemployment to 12% and a snap-back in interest rate to 4.2%. It is important to understand that this stressed scenario is not a forecast of future economic conditions but a tool for exploring the resilience of banks’ balance sheets to such a ‘tail-event’.

Over the course of the three-year stress period the aggregate core equity tier 1 ratios fall to 7.3%, well above the 4.5% CET1 minimum threshold, the eight banks make cumulative profits of £9 billion (compared to cumulative profits of £100 billion projected in the baseline scenario) but the distribution of profits and losses varied across the different banks depending on their business models – principally their exposure to UK mortgage lending.

One bank’s capital resources were projected to be exhausted in the stress scenario and it has submitted a revised capital plan which has been accepted by the Prudential Regulation Authority, although it is important to note that its aggregate exposure accounts for less than 1% of all the bank loans that were subject to the stress test.

The stress testing process, which required the submission of over a third of a million data items, was a very resource intensive process for banks and the Bank of England alike but there is no doubt that it was a useful process. The Bank of England has stated that although it intends to widen the number of banks and building societies subject to the stress test in the medium-term next year’s stress test will again be confined to the UK’s eight largest banks.

This is welcome news and the BBA looks forward to working with members to improve the 2015 stress testing process by examining the materiality and granularity of some of its data requirements. Any decision to extend the stress testing more widely should be proportionate, taking into account the scale and complexity of the relevant bank or building society – challenger banks as unlikely to pose a threat individually or in aggregate to the UK financial system and their involvement in any future stress test should be recognise this.

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International Debt Capital Markets / Bond Markets Tue, 16 Dec 2014 11:26:20 +0000 0 BBA response to BoE stress tests announcement Tue, 16 Dec 2014 10:58:50 +0000 Read More]]> Responding to the results of the Bank of England’s stress testing exercise of the UK banking system, BBA Executive Director Simon Hills said:

“These tests confirm that the UK’s banking industry is in a much stronger position and that the recent reforms are working.

“The majority of our major banks would be able to weather even the severest of storms and appropriate action is being taken to make all banks more resilient.

“This is good news for customers because it means that banks should be able to continue to perform their necessary functions of taking deposits and giving out loans, even if the UK experiences a severe downturn.”


For more information please contact the BBA press office on 0207 216 8989

1. For more information on the stress tests click here:

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