A new report has some intriguing insights about the way Britain’s biggest businesses are contributing to our public finances, writes Sarah Wulff-Cochrane.
New figures reveal pick-up for SMEs
The Times (£, p67) reports the Bank of England’s Funding for Lending figures which show that net lending through the scheme has fallen by over £100 million in the last quarter, but notes that “the pace of decline has started to slow”. Meanwhile two thirds of small businesses told the Q3 SME Finance Monitor survey that they are aiming to pay off their debts, rather than borrow more (Reuters). The article quotes a BBA spokesman as saying: “Although most firms are happy with their current arrangements, more of those seeking funding are having their applications approved and reporting that the process was fast and hassle free” . The BBA also released statistics on bank support for small businesses, revealing that banks approved £7.9 billion of new lending in Q3 – up 13% on the same quarter last year. The figures also show that SME cash holdings are rising strongly and now exceed borrowing by £48 billion.
Commenting on FLS & BBA statistics on lending, BBA Executive Director of Business Finance, Irene Graham said:
“BBA figures out today continue to show a pick-up in borrowing by small and medium sized businesses. The Funding for Lending Scheme has played its part in that. Companies are also increasing their cash reserves, which suggests that the sector is in a healthy position. The majority of businesses that approach their bank for finance are successful and if they are not there is a process in place that allows them to appeal the decision. We would encourage business owners thinking about borrowing to approach their bank.”
Hundreds of thousands of jobs at risk from structural reform
Plans to restructure the banking sector could cost as many as 316,000 jobsacross Europe, according to the Telegraph (B3). The articlereports on claims made in a paper by PwC stating that “the European Commission’s plans could also force several banks to exit certain markets, as well as having a knock on effect on mortgage costs”. The study also warns that additional regulatory costs could force banks to charge customers and businesses more for services. The paper writes: “PwC estimated that the higher cost of companies raising debt (estimated at €5 billion (£4 billion) across the EU); the burden of dealing with multiple banks if they want services from institutions inside and outside the ringfence; and the shrinkage of the financial sector itself, would lead to a permanent €19.4 billion (£15.4 billion) reduction in EU GDP – equivalent to 0.15% of output.”
Draghi “steps up” call for economic union
ECB president Mario Draghi has reportedly started to push harder for Brussels to be handed powers to set economic policies for eurozone members. The FT (£, p8) writes that, “…the remarks are the boldest call yet by the European Central Bank president for decision-making in the single currency area to be wrested out of the hands of national governments.” The article goes on to say that the centralisation of monetary policy was not enough as each strand of decision-making interacts with one another. A fiscal union would seek to stop measures taken at a national level from undermining the overall health of the eurozone, it adds.
This push comes as Vítor Constâncio, the ECB’s vice-president, urges policymakers to do all they can to boost eurozone inflation “in spite of warnings that any extension to the ECB’s bond-buying spree could increase risks for the bloc’s financial system”. (FT, £, p6).
New approved borrowing by SMEs, of £407million in Q3, was marginally higher than in previous quarters and the highest quarterly amount seen since this series started in 2010, some 15% more than in the same period a year earlier.
The approval rate for SME loans runs at 9 out of 10 applications.
More than one third of all loan applications approved in Q3 were for the Agriculture sector, accounting for one fifth of the value of all facilities approved.
Borrowing stocks in the construction and real estate sectors continue to reduce, resulting from larger businesses repaying borrowing, use of alternative finance products, debt being written-off or sold.
As reports published this week show, banks are more concerned about customer outcomes than sales targets. The BBA’s Paul Chisnall digests what they say about the industry.
Commenting on the publication of the Bank of England’s Q3 Funding for Lending Scheme statistics and the BBA’s latest figures on lending to SMEs, BBA Executive Director of Business Finance Irene Graham said:
“BBA figures out today continue to show a pick-up in borrowing by small and medium sized businesses. The Funding for Lending Scheme has played its part in that. Companies are also increasing their cash reserves, which suggests that the sector is in a healthy position. The majority of businesses that approach their bank for finance are successful and if they are not there is a process in place that allows them to appeal the decision. We would encourage business owners thinking about borrowing to approach their bank.”
Horta-Osório criticises plans for ANP; defends free in credit banking
The FT (£, p20) reports that Lloyds banking group chief executive Antonio Horta-Osório has hit out at suggestions that the banking industry should introduce account number portability. He said: “From a customers’ view, I don’t see anyone giving their account number to anyone – most people don’t even know their current account number. So, does it increase the easiness of switching providers? I don’t think so.” He estimated that if implemented it could cost £5 billion. He instead called for the industry to focus on perfecting the seven-day switching service. Reuters reported that Mr Horta-Osório also defended the free in credit model of banking, saying that it was “evidence of competition and customers love it, so I do not intend to change it”.
Half of big banks could exit business lines due to EU reforms
A study by PwC for the Association of Financial Markets in Europe has found that nine out of 18 globally systemic important banks could have to exit key business lines such as rates, commodities and securitisation if the EU presses ahead with its bank structural reform plans. It found that banks could face extra funding costs of €16 billion a year, plus €5.3 billion of one-off costs to implement the changes (FT, £, p16).
In a separate letter to the FT (£, 10) Benoît Lallemand from Finance Watch has criticised the BBA and FBF letter to the EU Commission which called for the proposals to be looked at again. Mr Lallemand calls on “EU policymakers to resist special pleading designed to protect subsidies and national champions”.
Diamond: Basel III causing Western banks to retreat from Africa
Bob Diamond told an FT (£, p16) conference yesterday that the retreat of global banks from markets such as Africa is creating a “once in a lifetime” opportunity for investors. He said: “For 20 or 30 years the buyers of financial assets were always big financial companies. Basel III [capital rules] and too big to fail regulation have changed that and they are now completely off the stage… Money is being pulled back to home markets by banks in the US, UK and Europe because of Basel III. Global banks not in Africa are not looking at it all.” His new venture, Atlas Mara has invested in three banks so far in southern Africa, Rwanda and Nigeria and has not had to compete against any banks when doing those deals.
Metro: challenger banks “going to get their share”
On the FT website, Vernon Hill, the chairman of Metro Bank criticises the technology platforms used by the big UK banks. He says: “In the US, they [banks] outsource the IT systems. We outsource, using a Swiss company. Otherwise you can’t deliver service.” He told the paper that Metro is working on digital technology that will mean customers are instantly recognised when they walk into a branch, allowing staff to access certain data to serve them faster. The article quotes BBA research that shows that branch transactions are falling by about 10% a year but notes that Metro is bucking the trend and has plans to open 12 new “stores” next year on top of the 31 it already has. Mr Hill concludes that the challenger banks are “going to get their share”.
Read the BBA’s report on promoting competition in the UK banking industry.
Banking on the move is more popular than ever before and 15 million mobile banking apps have been downloaded. The BBA’s Rob Watts explains why ‘clicks and mortar’ style banking is here to stay.
“Cooling” UK housing market
Many of today’s paper’s report on the BBA’s high street banking statistics, which were published yesterday. The Guardian (p28) says the figures showed a slowdown in mortgage approvals, with the number of approvals for house purchases hitting a 17-month low of 37,076 in October. The paper adds that cooling in the housing market is a result of the Bank of England’s mortgage market requirements, high prices, the uncertainty caused by the 2015 general election and the prospect of higher interest rates next year.
Changes due for current account switching service
The Chancellor is to announce changes to the Current Account Switching Service (CASS) in his Autumn Statement on 3 December, according to Sky. Sky sources report that George Osborne will announce an extension of the service to small businesses with a turnover of up to £6.5 million. The banks are expected to extend the two-year period in which they will guarantee the redirection of payments to a customer’s new bank account to 36 months.
Regulator launches investigation into credit card market
The Financial Conduct Authority (FCA) has begun an in-depth investigation into the UK’s credit card market. (Telegraph, B3). The paper quotes Christopher Woolard, the FCA’s director of policy, risk and research, who said: “The credit card market is well-established and hugely important for UK consumers, who hold around 70% of all credit cards in Europe. We want to understand in more depth what drives consumers to make the choices they do and how firms develop the services they offer. We want to make sure that the market works well for all consumers and that card-holders get a fair deal.”
Carney says UK economy needs monetary stimulus
Appearing before the Treasury Select Committee yesterday, Bank of England Governor Mark Carney insisted that monetary policy will not be loosened further, but said that the British economy still needs monetary stimulus despite an expected growth rate of 3.5 per cent this year (City AM, p2). He told MPs “the [Bank’s] next move in policy is going to be an increase”. Also giving evidence, Monetary Policy Committee member Kristin Forbes said the fact that measures of domestically generated inflation were low should continue to keep inflation contained for now. She added that deflation was unlikely.
BBA stats show cooling housing market
High Street Banking statistics released this morning by the BBA reveal a continued cooling of the housing market, with house purchase approvals 16% lower than in October last year. However, annual growth in unsecured borrowing is running at 2.8%, the highest rate since 2008. BBA Chief Economist Richard Woolhouse said:
“Today’s figures suggest that the cooling of the property market has continued in recent weeks. Approvals were 16% lower in October than in the same month last year – the corresponding figure for September was a 10% decline. Despite a softening in the housing market, consumers continue to show confidence in the economy with unsecured borrowing at its highest growth rate in years. At the same time we all continue to make the most of new ISA rules, stashing more in our savings accounts over the course of the last year.”
BoE: Larger buffers for clearing houses
David Bailey, the Bank of England’s Head of Markets Infrastructure and Policy, said yesterday that clearing houses may require bigger capital buffers to prevent them needing government bailouts. Citing the FSB’s recent total loss absorbing capacity announcement, Mr Bailey told a conference that “we will need to consider carefully whether and how this concept could be effectively translated to CCPs [central counterparties]” (FT, £). Mr Bailey also called for CCPs to show regulators clearer stress tests, stating: “There is no requirement for CCPs to disclose the details of the stress tests which they use…it may be difficult for participants to fully compare the level of stress that CCPs can withstand” (CityAM, p14).
Juncker to unveil stimulus package
European Commission President Jean-Claude Juncker will announce €21 billion (£16.6 billion) in EU seed money tomorrow to help resuscitate Europe’s economy, the FT (£, p8) writes. The European Fund for Strategic Investment will be used to raise funds worth an estimated €315 billion for higher-risk projects by seeking to “leverage small amounts of public money to attract large amounts of private capital”. The plans will not be finalised until it is endorsed by the 28-member Commission, however it has seen resistance from some northern countries such as Britain, who have “emphasised that the scheme must not lead to an increase in the EU budget” (Guardian, p21). Officials hope to have it fully approved by mid-2015.
Richard Woolhouse, Chief Economist at the BBA, said:
“Today’s figures suggest that the cooling of the property market has continued in recent weeks. Approvals were 16% lower in October than in the same month last year – the corresponding figure for September was a 10% decline.
“Despite softening in the housing market, consumers continue to show confidence in the economy with unsecured borrowing at its highest growth rate in years.
“At the same time we all continue to make the most of new ISA rules, stashing more in our savings accounts over the course of the last year.”
The BBA and the Fédération Bancaire Française have written to the European Commission to call for a fresh look at proposals on the structural reform of banks. The BBA’s Paul Chisnall sets out why the case for reform should be re-examined under the EU’s Better Regulation regime.
London falls further behind New York in global rankings
The Telegraph (B1) reports that London has fallen further behind New York in a survey of financial services professionals. Kinetic Partners’ survey of 300 finance professionals found that 59% thought New York was the world’s number one financial centre and 38% thought it was London. This is a complete reversal in just two years when nearly two thirds of respondents saw London as the pre-eminent financial centre in the world. 53% of respondents said that Shanghai would be the leading emerging market centre in five years’ time.
In a comment piece Ben Wright argues that “at least part of the City’s fall from grace on the global stage is the unseemly spat between Brussels and London over banker pay. One bank chief executive said last week that the new pay rules are not yet damaging his firm’s ability to retain staff. But it is making it harder to attract talent… This is how a potential exodus of bankers will happen – not in a rush, but slowly as replacements for old jobs based in London are filled in Hong Kong or New York.” (Telegraph, B2)
BBA calls on EU to reconsider structural reform proposals
The FT (£, p18) reports that the BBA and its French counterparts, the FBF, have written to EU Commissioner Frans Timmermans calling on him to look again at proposals to change bank structures across Europe. Mr Timmermans is in charge of reviewing EU regulations to see if they need adapting. The letter says: “We believe there to be grounds for considering, as part of your better regulation review, whether the case for structural reform at a European level has been proven and whether the proposal can be said to pass your test of subsidiarity… There is a serious risk that the structural reform measures, as currently proposed, would constitute a considerable handicap in financing European companies.” According to the article the EU is unlikely to withdraw the measure but it is expected to be watered down, although the ban on “proprietary trading” is likely to remain.
BBA calls for workplace ISA scheme
The Sunday Times (£, M6) reported on BBA proposals for employees to be given new workplace savings products to help them become more “financially resilient”. It quoted Anthony Browne, chief executive of the BBA, saying: “It is often life’s uncertainties that get people into financial trouble. Too many do not have those rainy day funds to call on if they lose their job, the boiler breaks or the car dies. Without those emergency pots, many of us can find ourselves forced into the arms of payday lenders, or worse. A work-based Isa that is transferable from job to job could help millions to cope better with life’s ups and downs.”
Claims companies making millions out of PPI compensation
The Times (£, p44) reports that the biggest claims management companies have made over £150 million in fees from PPI compensation in the last year. The paper quotes Richard Lloyd, from Which saying: “Consumers should avoid using claims firms that charge hefty fees for PPI complaints they could easily do themselves for free.”
Face painters, handcrafted gin makers and ladies who camp in the wild were just some of the entrepreneurs that came together for the Mentorsme Awards in London on 18 November. The BBA’s Emily Hoquee went to find out more.
The BBA and many others were concerned that tough new powers for the taxman would unwittingly catch vulnerable customers. Rebecca Park explains why HM Treasury was right to modify its plans.
HMT U-turns on tax powers
The front page of the Telegraph reports that the Treasury has watered down its plans to give HMRC powers to take money directly out of people’s bank accounts without permission if they are believed to owe tax. The new safeguards will ensure that taxpayers have to have a face-to-face meeting first and that they will have the right of appeal through the county courts. Crucially the plans will not now be put into primary legislation until after the general election.
The BBA raised concerns about the proposals in the summer and signed a letter to the Sunday Times along with a broad coalition of groups such as Liberty and the Law Society – calling them a “power too far”.
HMT gives up on bonus cap challenge
Following on from the news that the EU Advocate General had ruled against the UK legal challenge to the EU bonus cap, the UK Government has decided to withdraw its case. Chancellor George Osborne is quoted in the FT (£, p2) saying: “I’m not going to spend taxpayers’ money on a legal challenge now unlikely to succeed. The fact remains these are badly designed rules that are pushing up bankers’ pay, not reducing it. These rules may be legal but they are entirely self-defeating, so we need to find another way to end rewards for failure in our banks.” In a letter to Mark Carney in his role as chairman of the Financial Stability Board the Chancellor urges him to push for global standards including looking at the idea of performance bonds: “I was interested by some of the ideas floated by President William Dudley of the New York Federal Reserve which would increase accountability by putting more of senior bankers’ remuneration at risk.”
The article quotes the BBA saying: “We believe that shareholders should be given powers to determine staff pay – not politicians. We believe this law runs counter to recent reforms and will make the system less robust by incentivising firms to increase fixed pay. It also puts European banks at a disadvantage when competing with firms in other parts of the world.”
US warns on EU benchmark plans
The US could be forced into tougher regulation if proposed European rules on benchmarks prevent access for EU banks and asset managers to US markets, reports the FT (£, p30). Timothy Massad, chairman of the Commodity Futures Trading Commission warned senior US policy makers that the European Commission’s tougher oversight of benchmarks could have “adverse markets consequences”. EU proposals seek to prohibit European-supervised banks and asset managers from using benchmarks outside of the EU. In a letter seen by the FT, Mr Massad wrote: “The US does not have such a supervisory regime and in the absence of any changes, the third-country equivalency requirement would prohibit EU institutions from hedging using thousands of products traded on US futures exchanges and swap execution facilities”.
UKIP wins second by-election
UKIP have won the by-election in Rochester and Strood. Former Conservative MP Mark Reckless won by 2,920 votes. The Green Party came fourth, while the Lib Dems got their lowest total ever (BBC).
The Bank of England has recommended that the Treasury flex new powers granted to it to direct the Prudential Regulation Authority to set leverage ratio requirements. The BBA’s Emily Hoquee examines how this could enhance the safety of the UK banking industry.
Responding to the EU Advocate General’s opinion on the EU bonus cap legislation, a BBA spokesman said:
“We continue to support the Treasury’s challenge to this legislation. There have already been sweeping changes made to the way that bank staff are paid since the financial crisis. Bonuses are smaller and staff are rewarded for making decisions that benefit businesses, shareholders and the broader economy.
“We believe that shareholders should be given powers to determine staff pay – not politicians. That’s why banks consult with investors before setting staff pay and shareholders also have the power to vote on the pay of senior bankers.
“We believe this law runs counter to recent reforms and will make the system less robust by incentivising firms to increase fixed pay. It also puts European banks at a disadvantage when competing with firms in other parts of the world.”
EU Advocate General says bonus cap law is valid
Niilo Jääskinen, the EU Advocate General, has this morning said that the EU law to restrict bankers’ variable pay is valid. George Osborne, the Chancellor, launched a legal challenge to the rule which aims to restrict bonuses to 100% of salaries – or 200% if a bank’s shareholders approve. Mr Jääskinen’s statement said: “Given that the variable component of remuneration impacts directly on the risk profile of financial institutions, it can affect the stability of financial institutions who can operate freely across the EU, and in consequence that of the financial markets of the EU.” The Advocate General’s opinion is not binding, but the ECJ rarely goes against it. The ECJ’s final decision will be made next year.
Shafik – bankers who fixed foreign exchange should pay back bonuses
Nemat Shafik, the recently appointed Bank of England Deputy Governor, has suggested that the threat of jail would be a better deterrent to keep rogue bankers in check than large fines, the Guardian (p30) reports. The economist also said she expected those banks with staff found to be involved in the manipulation of foreign exchange markets would pare back bonuses to such individuals. Speaking to members of the Treasury Select Committee yesterday, Ms Shafiq said: “Individual accountability, particularly criminal sanctions are the most powerful inducements to better behaviour.”
MPC increasingly divided over economic outlook
Most newspapers report the increasing divergence of opinions on the Bank of England’s Monetary Policy Committee. Although the margin of members voting for a rate rise remained split at 2-7, the minutes from this month’s meeting record a “material spread of views” amongst those pushing for a hold. The Daily Mail (p78) suggests that concerns over the strength of output, employment growth and consumer spending could lead the MPC to move on rates before the end of next year.
European Commission announces new transparency drive
EU Observer reports that the European Commission has announced a new transparency drive, promising that contacts with lobbyists will have to be publicly recorded and documents relating to an EU-US trade are made available to all MEPs. Commission Vice-President Frans Timmermans is quoted as saying: “I think we have moved from a time where government had an attitude towards the public of ‘trust me’ to a situation now where the public says to government ‘show me!’ And we want to show you.”
Under the plans, Commissioners, members of their cabinets and the heads of the various departments of the Commission will all have to make public their meetings with lobbyists and other pressure groups, the article writes.
Paul Chisnall assesses this week’s TSC report on the progress of banking reform and the statement by former members of the Parliamentary Commission on Banking Standards.
City at risk to ISIS cyber attack, warns police
Adrian Leppard, the City of London Police Commissioner, has warned that there is a “very strong likelihood” that jihadis will launch a cyberattack on the City unless more is done to protect against online incursions, the FT reports (£, p3). Mr Leppard singled out the Islamic State of Iraq and the Levant as a potential perpetrator, and told the paper that western societies needed to balance the benefits of technological progress with the “huge harm” an attack could wreak. The BBA’s report “The cyber threat to banking: a global industry challenge” is available online.
Women’s enterprise celebrated
The BBA and its partners celebrated the successes of female business owners in London last night at the Excellence in Women’s Enterprise Mentoring Awards. Nominees and their business mentors were honoured at the BT Tower at a ceremony attended by more than 60 people. The winners were:
Growth – Hadland Care Group
Start Up – Black Energy Renewables
Export and Innovation – Dunnet Bay Distillers
Best Mentor – Chelsey Baker and Jeanette Forbes
Digital Enterprise (sponsored by BT) – REALsafe Technology
Coco bonds nearly triple this year
The number of contingent convertible bond deals has nearly tripled this year, as banks have issued bumper volumes of riskier but higher-yielding debt in the current low-interest-rate environment (FT, £, p30). European financial institutions’ issuance for coco bonds stands at $31.8 billion (£20.3 billion) via 20 deals for 2014, compared with $15 billion (£9.6 billion) and 14 deals in 2013, the paper writes, adding that coco issuance accounts for just under a tenth of all subordinated bank debt issues in Europe this year.
S&P warn Bank of England on UK recovery
Standard and Poor’s says the Bank of England has greatly underestimated the degree of slack in the British economy and risks killing the recovery by tightening too soon, the Telegraph writes (B4). The paper quotes S&P’s chief European economist Jean-Michael Six: “We don’t see any tangible signs of a housing bubble…the UK is cooling off. It is nothing to be alarmed about, but we think a premature rate rise could put the recovery in jeopardy. There is a long way to go before deciding the horse is going too fast and needs to be reined in.”
How much do you know about financial crime? Do you know your malware from your money laundering? Find out more at IBM Red Cell’s Counter Financial Crimes Symposium.
Carney’s tough stance on remuneration
A number of papers report on Mark Carney’s calls to for bankers’ salaries – not just their bonuses – to be put under scrutiny if they are found to have broken rules. In a lecture in Singapore, the Governor of the Bank of England said the EU bonus cap has “the undesirable side-effect of limiting the scope for remuneration to be cut”, therefore “standards may need to be developed to put non-bonus or fixed pay at risk”. He cited the idea of president of the New York Federal Reserve William Dudley, who suggested that senior staff receive a portion of their salary in ‘performance bonds’, which would be forfeited in the case of a large fine and could help recapitalise a bank (FT, £, p2).
In the wake of the foreign exchange rigging scandal, Dr Carney argued that “the repeated nature of these fines demonstrate that financial penalties alone are not sufficient to address issues raised” (Times, £, p43). He added that the rising number of scandals “mean it is simply untenable now to argue that the problem is one of a few bad apples. The issue is with the barrels in which they are stored” (Guardian, p28).
However, the Telegraph (B1) suggests that Dr Carney’s proposals could clash with the European Banking Authority’s opinion, stating that “pay that can be clawed back would count as a bonus”, and would therefore be subject to the EU bonus cap. Pinsent Masons partner Steven Cochrane told the paper: “It is extremely unlikely that existing contracts of employment would allow for this…any such changes to how banks treat fixed pay would represent a sea change in compensation culture and deter talent from entering financial services.”
Europe edges closer to full QE
The European Central Bank’s president Mario Draghi told MEPs that the Bank may buy government bonds if the eurozone economy deteriorates further, with the Times (£, p42) stating that this was his “first explicit statement that full-blown quantitative easing was on the cards”. He added that the central bank’s policies were already having a positive effect: “We are seeing early indications that our credit-easing package is delivering tangible benefits.” He also assured parliamentarians that the “euro is irreversible and the ECB will do whatever it takes within its mandate”. CityAM (p2) reports that an announcement of government bond purchases could come at the next ECB decision on 4 December.
FCA asks financial firms to improve complaints handling
A Financial Conduct Authority review into complaints handling practices has found that firms “could – and should – do more to deliver fair complaint handling and consistent outcomes for all consumers”, reports the Guardian (p30). Recommendations include phone lines for complaints costing no more than the basic rate and for all complaints to be reported to the FCA. The 15 unnamed companies under review – which range from banks to insurance firms – have agreed to adhere to these changes. Read BBA Policy Advisor Melanie Worthy’s thoughts below on the improving nature of the complaints handling review.
The BBA’s Melanie Worthy explains why today’s FCA review of the way banks and other companies handle complaints is getting better – and has important advice on how to further improve these systems.
PCBS calls for reform momentum to be maintained
The Parliamentary Commission on Banking Standards has widely briefed this morning’s papers warning that its proposals for reform could be stalling and calling on the Government and the banking industry to implement them in full. They argued that “it is essential that the momentum behind our reforms is maintained. There is much still to do.” (Times, £, p40 Independent, p7)
Cameron – “red warning lights” flashing for global economy – calls for trade reform
Writing in the Guardian (p31) Prime Minister David Cameron warns that “red warning lights are once again flashing on the dashboard of the global economy.” He sets out a number of measures to help push forward global growth and prioritises an EU trade agreement with America and reform of World Trade Organisation. He writes:“At this G20 I brought together a crucial meeting between President Obama and fellow European leaders to insist on urgent progress on a comprehensive EU-US trade deal that could add £10 billion to the UK economy alone. The new European Commission must put this at the top of its to-do list. At a time when the Eurozone is stalling we cannot duck such an opportunity for growth. We should sign more deals with Australia, and with China and India too. We need to persuade more countries of the benefits of free trade and open markets for all our peoples and for the wider world. We are also pressing for reform of the World Trade Organisation so that poverty busting trade deals are put together, agreed and implemented more quickly.” His comments were echoed by Angela Merkel in her press conference in Brisbane. (Euractiv)
FCA in spot inspections in investment banks
The Times (£, p40) reports that the Financial Conduct Authority (FCA) is making unannounced spot inspections of trading floors, which involve conducting interviews with traders about the positions they are taking in the market. The traders are reported to be given no warning of the interviews – something that the FCA is said to see as important so that they can properly understand the culture at each investment bank.
RBS in inclusion review
RBS global head of inclusion Marjorie Strachan tells the Times (£, p5) that the bank is looking at introducing a more gender neutral title of “Mx” as opposed to Mr or Miss. Emphasising the importance of staff training for transgender customers, she said: “We recognise it can be extremely upsetting if a customer who is undergoing gender re-assignment walks into a branch and doesn’t have an easy option in explaining their needs.” The article also reports that the bank may stop asking for a mother’s maiden name as a security question due to the rise of two-father families. A spokesman for Stonewall, the gay equality campaign group, said: “The best businesses in 21st-century Britain are ones who respond to the needs of all their customers, that includes LGBT people, people with two dads or people who change their gender.”
Labour looks to restrict bonuses for takeovers
Shadow Business Secretary Chuka Umunna has told the Times (£, 37) that large bonuses for bankers involved in corporate takeovers should be restricted. “We need greater transparency on the way people who advise on these transactions are rewarded,” he said. “We need to look at whether it is appropriate to have huge success payments for takeovers that incentivise advisers to complete a deal even if it might not be in a company’s best interests. At the moment, there is a takeover bus that once it has started is very hard to stop and that builds behind transactions without thought for the impact on the company. This is one reason we will restrict voting rights of shareholders who appear on a register after a takeover is announced to stop carpet-baggers and speculators”.
De-risking in the banking industry
The FT’s ‘Big Read’ (£, p13) focuses on the phenomenon of ‘de-risking’. It warns that as “regulators have cracked down on money laundering and terrorist finance, banks have severed their ties with many clients in developing nations in an attempt to limit the risk of being hit by massive fines. The banks and other critics say this carries an unintended humanitarian cost by adding charities and non-governmental organisations to the ranks of the ‘de-banked’.”
The article quotes from a private report by the BBA and other organisations which shows the scale of the challenge. The article says, “Research from the International Chamber of Commerce suggests a major impact on trade finance. Drawing on the responses of 298 banks in 127 countries, it found that anti-money laundering and “know-your-customer” requirements had led to 68 per cent of surveyed banks declining transactions in 2013. Africa was the hardest hit, and small and medium-sized businesses were the most acutely affected sector.” The paper says that the BBA’s report was discussed at the global standard setting body – the Financial Action Task Force in October. Governor of the Bank of England Mark Carney has also voiced concerns and said that the matter would be discussed at the G20 this week. He warned of the possibility of “parts of the world being unbanked or less actively banked” and called for better co-ordination between regulators. Scott Paul, senior humanitarian policy adviser at Oxfam America described the situation that banks face as “a case of non-negligible risk and negligible reward”.
New payments regulator sets out approach to regulating the industry
Yesterday the Payment Systems Regulator published its proposed shake-up of the payments infrastructure in the UK. The FT (£, p4) notes that one of the main areas of focus for the new regulator will be the ownership of the payments infrastructure with the new chief executive of the PSR, Hannah Nixon commenting “One of the things we’re really focused on is how to get easier, better access to the systems directly. Some challengers will want to go through the sponsor bank because it’s easier for them. But we want to make sure direct access is as straightforward as it can be and that those who go indirectly can do it easily.” The PSR also intends to take responsibility for setting payments strategy and will take over some quasi regulatory functions currently carried out by the Payments Council.
G20 Summit starts today
Leaders of the G20 countries meet in Brisbane today. Ahead of the meeting the Australian Prime Minister, Tony Abbott has written in the Australian media that the focus of the summit should be on jobs and growth. He writes: “Six years ago, the impacts of the global financial crisis reverberated throughout the world. While those crisis years are behind us, we still struggle with its legacy of debt and joblessness. The challenge for G20 leaders is clear – to lift growth, boost jobs and strengthen financial resilience. We need to encourage demand to ward off the deflation that threatens the major economies of Europe”. The Australian Finance Minister, Joe Hockey has also promised “very aggressive approaches” on dealing with tax avoidance by multinational companies (BBC News).
Banking fines for forex manipulation
It was announced yesterday that banks will be fined a total of £2.7 billion as regulators from the UK, US and Switzlerland impose fines for traders’ attempts to manipulate the foreign exchange markets (Times, £, p1). The Guardian (p1) reports that these banking fines have resulted in a £1.1 billion windfall for the Treasury ahead of next month’s Autumn Statement. Though decisions have not yet been made regarding how the money will be spent, Deputy Prime Minister Nick Clegg identified the NHS and tax cuts for those on low and middle incomes as possible uses. The Independent (p4) reports that the Serious Fraud Office is investigating to establish whether it can bring criminal actions against those responsible.
Young should learn about savings
The Church of England has said that children as young as 4 should be encouraged to attend “savings clubs” in schools, in a bid to teach them about money to avoid them turning to payday lenders in the future (Mail, p32). The proposals have been put together by a taskforce, appointed by the Archbishop of Canterbury and chaired by Sir Hector Sants, former head of the Financial Conduct Authority. They are now seeking funding for a pilot of the scheme which will invite credit unions and building societies to set up “branches” inside primary schools, run by local volunteers (Telegraph, p4).
Rate rise may not happen until next autumn
The Bank of England’s quarterly inflation report suggests that markets shouldn’t be factoring in a short term increase in interest rates (Sky). The Bank also forecast that inflation is likely to fall below 1%, something Governor Mark Carney expects to have to write to the Chancellor to explain. Dr Carney said that “the spectre of economic stagnation” hangs over the eurozone, though forecasts showed that UK growth would remain high at 2.9% next year.
Sky News reports that the Financial Conduct Authority and the Futures Trading Commission (CFTC) have fined five banks more than £2 billion collectively for colluding in key foreign exchange markets. BBC News adds that the fines follow a year-long investigation by regulators.
Low mortgage rates raise hopes for economic recovery in 2015
The Independent (p57) reports that mortgage rates have sunk to an all-time low, raising hopes that improving household finances can drive a stronger-than-expected recovery in 2015. Bank of England data found that the average cost of a two-year fixed-rate deal with a 25% deposit sank 0.22 percentage points in October, and the interest rate on a mortgage with a 90% loan to value has sunk from 4.5% in June to 3.99%.
UK and Swiss banks will be “least impacted” by TLAC rules
City AM (p15) says new rules presented by the Financial Stability Board mean that UK and Swiss banks will be best placed for new capital buffers. Under the rules, all globally systemically important banks will issue more capital to build up the buffers of total loss absorbing capacity (TLAC). The paper quotes Citi’s Andrew Coombs, who says UK and Swiss banks will be the least impacted by the rules as they will benefit from existing holding company structures from which they can issue senior. Click here to read BBA Senior Policy Director Adam Cull’s thoughts on the proposals.
Push Technology’s Ros Elmes tells BBA Insight how technology has made banking even easier, and highlights the challenges retail banks face in the race to innovate and deliver a better digital service to their customers.
On 1 January Latvia will take over the Presidency of the Council of the European Union for the first time. The BBA’s Ashley Dorrington travelled to Riga to find out more about the Latvian presidency’s priorities.
Impact of FSB proposals assessed
A number of papers review yesterday’s Financial Stability Board (FSB) proposals for total loss-absorbing capacity (TLAC). The Times (£, p52) notes that the rules are not dissimilar to the Vickers report, which “envisaged capital [requirements] of 17% of risk-weighted assets. The FT (£, p17) reports that dividends and bonuses are likely to be affected due to an increase in funding costs for globally systemically important banks (G-SIBs). The Telegraph (B3) adds that the rules could “see the biggest banks cede market share to those not deemed ‘systemically important’”. However, David Ereira, banking partner at Linklaters, said: “The FSB proposal is an important step in solving ‘too big to fail’…However, on its own it is insufficient to deal with the issue” (Guardian, p23).
The BBC quotes BBA chief executive Anthony Browne: “The banking industry strongly supports this work, which is a really important step in ending ‘too big to fail’ and ensuring that never again will taxpayers have to step in to bail out banks. We agree with the aims and objectives of the proposals for total loss absorbing capacity (‘TLAC’), that there should be sufficient resources available to absorb losses in the event of bank failure and provide new capital to ensure critical economic functions can continue to be provided.” Read BBA Senior Policy Director Adam Cull’s thoughts on the proposals below.
FCA announces restrictions for payday lenders
The FCA has this morning revealed restrictions on the amount that payday lenders can charge their customers. The regulator announced that payday loan rates will be capped at 0.8% of the amount borrowed a day. No one will have to pay back more than double the original loan, with a £15 cap on default charges. The BBC notes that the price cap plan “remains unchanged from proposals the regulator published in July.” The Telegraph writes that “the unprecedented crackdown could put all but the three biggest players out of business”. However, consumer experts have warned that the regulator’s plans “do not go far enough in protecting vulnerable borrowers”, writes the Guardian.
Party leaders clash over EU at CBI conference
Prime Minister David Cameron told conference delegates an EU referendum was not scaring off inward investment into the UK, and reiterated his desire to reform the EU, writes the FT (£, p3). He said: “Simply standing here and saying, ‘I will stay in Europe, I will stick with whatever we have, come what may’ is not a plan”. Conversely, Labour leader Ed Miliband warned the conference that “leaving the single market would be a disaster for our country”. He added that Labour would “implement big reform of the banking system so that it is properly competitive and there are banks in every region with the sole purpose of lending to businesses in that region”. CBI president Sir Michael Rake opened the conference by stating that staying in a reformed EU “is overwhelmingly in our national interest” (Independent, p7).
The clashes continued in the House of Commons as the floor “descended into chaos and achrimony” due to confusion over the European Arrest Warrant (EAW), writes the Times (£, p1). Prime Minister David Cameron was forced to return from the Lord Mayor’s Banquet in order to avoid a Commons defeat after Shadow Homes Secretary Yvette Cooper forced a division once it emerged that a vote EU justice measures did not include the EAW.
Russia adjusts to sanctions
In an expectation that sanctions will last until 2017, writes the Telegraph (B4), the Bank of Russia has cut its growth forecast to zero next year and 0.1% in 2016. It also warned that capital flight would reach $128 billion (£81 billion) this year, much higher than previously claimed. In addition, the central bank fully floated the rouble yesterday in order to stabilise the currency on the foreign exchange market (FT, £, p7). The move came in an effort to deter investors from betting against the rouble after the Bank used $40 billion of foreign reserves since early October.
The Financial Stability Board has revealed its plans to end ‘Too Big to Fail’. The BBA’s Adam Cull examines what the proposals mean for the 30 Global Significantly Important Banks (G-SIBs).
Carney hails end of “too big to fail”
Ahead of the G20 meeting in Australia next weekend Bank of England Governor Mark Carney has hailed proposals on total loss absorbing capacity and bail-in as “a watershed in ending ‘too big to fail’ for banks.” According to the Telegraph (B3), “These measures will shift the burden of a bank bailout away from taxpayers to investors who own the banks or lend them funds. Under the new so-called “bail in” rules, globally systemic banks will have to hold “total loss absorbing capacity” [TLAC]– equity or debt that can be converted into shares – of at least 16-20pc of their assets, weighted for risk. They will also have to hold an additional layer based on how important they are deemed to be to the financial system, and to avoid banks underplaying how risky their loans are, their TLAC must be at least double the global standard for the leverage ratio – a measure of capital that does not take into account risk. The current Basel minimum leverage ratio is 3pc.” (Also see Guardian, p23)
US banks and regulators clash over cyber security
US banks are gearing up for a fight with retailers over who should foot the bill for cyber security attacks. An article on the front page of the FT (£) quotes Cam Fine, Head of the Independent Community Bankers of America, arguing that if a retailers systems are breached, “Shouldn’t they have to reimburse banks for all of the costs since it wasn’t the banks’ fault? That’s just common sense.” In a letter to retailer and grocer groups the National Association of Federal Credit Unions and the Credit Union National Association said that “The weak link in the system today is on the merchant end. As long as the security standards on the merchant side of the system are weaker than those on the financial institution side of the system, the vulnerability for consumers and financial institutions will be at your feet.”
France attempts to get FTT agreement by the end of the year
French Finance Minister Michel Sapin, who met with other EU finance ministers in Brussels on Friday has urged his colleagues to come to a deal on the Financial Transaction Tax by the end of the year. He said countries should “advance, even if by only a step”, on the tax as the “worst danger would be failure” (EU business).
Spotlight on branch closures
The Mail on Sunday (p98) reported on how many banks are looking to reduce the number of bank branches in their network. In the Sunday Times Becky Barrow said that she had not used a bank branch for more than a decade but still argues that “it would be a great shame if more communities lost the last bank in town” as many elderly people and businesses rely on them.
Five billion of us have mobile phones – but just two billion have bank accounts. Pinsent Masons’ John Salmon looks at the opportunities and the regulatory environment
European Parliamentary work kicked off this week on one of the major pieces of new legislation to be completed in this new mandate. The Liikanen report, the Barnier proposal or now simply BSR for Banking Structural Reform – to add a new acronym to the list – was discussed for the first time in the Parliament’s Economic and Monetary Affairs Committee (ECON) on Tuesday.
CMA announces competition inquiry
The CMA’s announcement of a new inquiry into the personal current account and SME banking markets is picked up widely in the papers. The Times (£, p53) reports that the scope of the inquiry has been narrowed and the Mail (p19) speculates that the inquiry could lead to the end of free-in-credit banking. The FT (£, p3) reports that the Labour Party sees the CMA’s action as the watchdog jumping “before it was pushed… It is understood that Mr Balls privately encouraged the CMA to get on with a banking review before the general election, avoiding what could be seen as a blow to its independence if Mr Miliband won in 2015.” In a separate article the FT (£, p3) quotes Conservative MP Mark Garnier saying: “Ultimately, the issue is opacity of charging on current accounts – no one really has any idea how much they’re being charged.”
BBA Chief Executive Anthony Browne was quoted in various papers stating that the banks would “co-operate fully” with the inquiry. “There are already substantial changes currently under way across the industry to strengthen competition, which improves choice and service for customers.” Read his full comments here. In CityAM (p20) Treasury Minister Andrea Leadsom notes that there are “around 25 potential new banks in discussions with regulators”. She says that “A key part of our long-term economic plan is to inject much more competition into the UK banking sector, and the CMA’s decision represents an important next step towards achieving this.”
Alex Brummer writes in the Mail (p77) that the inquiry will allow the authorities to address the impact of mergers following the financial crisis. The Independent’s James Moore (p64) notes that the CMA has restricted options in attempting to foster more competition, writing that selling off branches will have a limited impact as they are “no longer anything like as important as they were”, whilst Nils Pratley writes in the Guardian (p42) that breaking up the banks “looks hellishly expensive”. Allister Heath echoes this point in the Telegraph (B2) stating that “last thing anybody needs is yet more useless, disruptive, top-down bank break-ups”. However, he adds that if the CMA “felt like being brave” it would address the issue of “free banking”.
ECB prepares for full blown QE
European Central Bank President Mario Draghi has instructed his staff to prepare “further measures” to combat low inflation in the single currency area which will be enacted “if needed”. The Independent (p61) reports that it is expected that this will include the purchase of European sovereign bonds. The paper quotes Jennifer McKeown of Capital Economics said saying that Draghi’s press conference “provided the firmest support yet for our long-held view that the Bank will implement full-blown quantitative easing… It is now a matter of when rather than if”. Draghi also predicted that the markets could expect a €1 trillion injection of liquidity from the ECB. The price of the euro dropped sharply in reaction to the news.
Rumours of Labour leadership plotting grow
The front page of the Times (£) says that two senior Shadow Cabinet members – Andy Burnham and Yvette Cooper – have met to discuss a post-Miliband Labour Party amid rumours that they have signed a non-aggression pact. The Independent splashes on news that Labour backbenchers are hoping to persuade 100 of their colleagues to sign up to a letter calling for a change in leadership which would force Ed Miliband out.
Number of credit cards at highest levels for four years
CityAM (p18) reports on BBA stats that show that the total number of credit cards has risen to its highest levels for four years. It quotes BBA Chief Economist Richard Woolhouse saying, “When we feel more secure in our jobs and optimistic about the economic outlook, we are more likely to take on more credit. So it’s pleasing to see that the number of cards in issue is now higher than at any time for four years. But there are also a lot of lenders offering zero per cent rates and interest-free periods at the moment. It’s very striking that as much as 42 per cent of all lending on credit cards does not incur an interest charge. Such deals will clearly make this type of borrowing much more attractive to customers.” See the full release here.
After a year of analysis, EY has delivered a report to the European Commission on the collection aspects of the proposed Financial Transaction Tax. Providing this report has now completed our engagement and we have no on-going role with the Commission or Member States with regard to EUFTT.
Welcome to my newsletter
As the unseasonably warm autumn gives way to the nip of winter, the climate is also changing in Brussels. Last weekend the new European Commission took office for the first time. The UK’s Commissioner Lord Hill will be responsible for encouraging jobs and growth through the development of the Capital Markets Union, as well as making sure that the financial system is safe and resilient. Shortly before the new Commission took office, Banking Union marked its first milestone as the results of stress tests for 130 European banks, including four British banks, were published.
CMA announce full market investigation
The Competition and Markets Authority (CMA) has announced that the personal current account market and small business banking will face a full investigation. Alex Chisholm, the chief executive of the CMA said this morning that: “After carefully considering the consultation responses, most of which supported a market investigation, we remain of the view that there should be a full market investigation into the sector” (Telegraph). The CMA will appoint a panel of experts to lead the investigation. An article in today’s Guardian (p29) which anticipates the announcement includes comments by banks chiefs Ross McEwan and António Horta Osório, warning of the high cost of splitting up the banks.
Reacting to this morning’s announcement by the CMA, BBA Chief Executive Anthony Browne said: “All the banks will co-operate fully with this investigation. There are already substantial changes currently underway across the banking industry to strengthen competition, which improves choice and service for customers. Banks are pro-competition – they compete for business every day. This summer we published a series of ideas to help new banks set up and smaller players to grow. We hope these suggestions will be taken up by regulators and politicians.”
The BBA published a report on competition this summer entitled Promoting competition in the UK banking industry, set out four measures to level the playing field in banking.
Confident consumers snap up credit cards
Today the BBA released statistics showing that the number of credit cards on issue stands at 59.7 million – the highest number in four years. The figures also show that 42% of borrowing on cards is interest free and card borrowing is growing at a rate of 5.7% annually.
Commenting on the statistics, Richard Woolhouse, the BBA’s Chief Economist, said: “These figures underline two significant trends – stronger consumer confidence and the increasing competiveness of many credit card deals on offer to customers. When we feel more secure in our jobs and optimistic about the economic outlook we are more likely to take on more credit. So it’s pleasing to see that the number of cards in issue is now higher than at any time for four years. But there are also a lot of lenders offering 0% rates and interest-free period at the moment. It’s very striking that as much as 42% of all lending on credit cards does not incur an interest charge. Such deals will clearly make this type of borrowing much more attractive to customers”. You can read the release here.
Banks urged to disclose more information on fraud
The Times (£, p7) reports that Donald Toon, director of the economic crime command at the National Crime Agency, yesterday told the Treasury Select Committee that he did not have a full picture of the levels of economic crime in the UK. His remarks prompted the Committee’s chairman, Andrew Tyrie, to question the reliability of the statistics available on financial fraud, saying: “It sounds as if we have a much bigger problem than is currently being admitted”.
China to sell US dollar bonds
The FT (£, p30) writes that the Bank of China has begun marketing Basel III compliant debt to global fund managers, making them the first mainland Chinese lender to sell dollar bonds to US investors. According to the article the bank hopes to make around $3 billion (£1.9 billion) from the sales. The ten year bonds will also meet requirements for European and Asian investors. The paper says that Chinese banks have been issuing debt “aggressively” this year to improve balance sheets ahead of new capital rules, raising a total of $27 billion (£16.9 billion) this year, compared to $4.7 billion (£2.9 billion) over the same period in 2013.
Reacting to this morning’s announcement by the Competition and Markets Authority, BBA Chief Executive Anthony Browne said:
“All the banks will co-operate fully with this investigation. There are already substantial changes currently underway across the banking industry to strengthen competition, which improves choice and service for customers.
“Banks are pro-competition – they compete for business every day. This summer we published a series of ideas to help new banks set up and smaller players to grow. We hope these suggestions will be taken up by regulators and politicians.”
Richard Woolhouse, the BBA’s Chief Economist, said: “These figures underline two significant trends – stronger consumer confidence and the increasing competiveness of many credit card deals on offer to customers.
“When we feel more secure in our jobs and optimistic about the economic outlook we are more likely to take on more credit. So it’s pleasing to see that the number of cards in issue is now higher than at any time for four years.
“But there are also a lot of lenders offering 0% rates and interest-free period at the moment. It’s very striking that as much as 42% of all lending on credit cards does not incur an interest charge. Such deals will clearly make this type of borrowing much more attractive to customers.”
The British Business Bank became fully operational on 1 November. The BBA’s Rob Watts welcomes this moment and explains how it could make a real difference to businesses.
CMA announcement on banking competition due tomorrow
Sky News reports that the Competition and Markets Authority will announce tomorrow that it is going ahead with a formal probe into the supply of banking services to small and medium-sized companies and personal current accounts.
Bailey warns of “overzealous” application of money laundering rules
Andrew Bailey, chief executive of the Prudential Regulation Authority, yesterday warned that overzealous application of money laundering rules is hindering British banks abroad and cutting off poorer countries from global financial markets (City AM, p2). Giving evidence to the Lords Sub Committee on Economic and Financial Affairs, Mr Bailey called for more international cooperation on money laundering rules to stop banking services being withdrawn from emerging economies, and claimed there was a “serious international coordination problem” over rules defining money laundering (Guardian, p30). Mr Bailey also told peers that banks should decide how much their staff earn, not regulators (Telegraph).
Tougher regulatory requirements and revenue declines cause investment banks to rethink
According to the FT (£), executives working in investment banking are being forced to rethink, design and shrink their trading operations in the face of tougher regulatory requirements and revenue declines. The paper reports that investment banks have not only had to deal with stricter capital rules and higher compliance and IT costs, but they have also seen high-margin complex products make way for simpler less profitable instruments. The FT adds that as a result, most banks are continuing to cut jobs, and some have pulled out of certain assets and are outsourcing whole areas. It quotes Barclays’ RoE Challenges report, which found that return on equity for European lenders’ investment banking divisions has halved from 21-25 per cent pre-crisis to 10-12 per cent last year.
Holiday pay ruling
The FT (£, p1) says senior business leaders have attacked a legal ruling yesterday that gave millions of UK workers the right to receive extra holiday pay. CBI director general John Cridland told the paper that “goal posts are simply moving here” and warned of “mission creep.” The ruling limits the scope for historic payouts, meaning that companies will not face a huge wave of backdated claims, but could boost the wages of around five million workers before a general election where questions about who benefits from the economic recovery will be debated, the paper adds. The Guardian (p4) notes that the Government has announced it will set up a taskforce to try to limit the impact on employers of the ruling.
Consumers have embraced online and mobile innovations to empower themselves and enrich their choices, whether they’re shopping for a car, looking for a dentist, or searching for a restaurant. When consumers are managing their money, they expect the same enhanced experience.
“Living wills” could mean higher cash reserves
US and European banks may be forced to increase their cash reserves by tens of billions of dollars in order to have their “living wills” approved by regulators, according to FT sources (£, p15). In August, US regulators rejected the wills – which identify how a failing institution could be wound down – of 11 banks, and called for improvements ahead of the 2015 submissions. One reason for this failure was that the regulators told banks not to assume access to the Federal Reserve in a liquidity crunch. In a second article in the FT (£, p18), president of the Federal Reserve of Richmond Jeffrey Lacker told the paper: “It doesn’t seem to me to be healthy, for financial institutions to expect their problems will be solved through central bank credit.” Without this support, people familiar with the living wills process have said that “most banks think they would have to set aside billions of dollars in cash as a cushion”.
ECB takes on role of supervisor
As of today, the European Central Bank will assume responsibility for monitoring the health of the eurozone’s biggest banks through the Single Supervisory Mechanism. Bloomberg writes that the supervisory regime will “set about trying to blend 18 sets of national supervisory habits into pan-European consistency, and prod banks to take more precautions against crises”. Head of the Bank Danièle Nouy told the European Parliament’s ECON Committee on Monday that the Bank needs to keep a close watch on the shadow banking sector as “the more rigorous the regulatory system, the more attractive shadow banking looks” (Reuters).
Virgin Money to revive flotation plans
Sky News reports that Virgin Money is poised to set out a new timetable for its IPO this week. The lender delayed plans for a flotation in October due to stock market volatility, the threat of deflation and concerns about global economic growth. However, Sky News suggests the recovery in bank share prices since the PRA’s leverage ratio announcement last Friday has led Virgin bosses to mount a further attempt at listing. CityAM (p1) states that the challenger bank will focus on its current branch network and its online and broker-led sales. Read the BBA’s Way We Bank Now work here.
BBA calls for changes to Senior Managers Regime proposals
Sky News reported that the BBA and AFME have called for changes to the proposed new Senior Managers Regime as it could create a disproportionate burden for some smaller banks. The submission also warns that new rules for non-executive directors could undermine their independence by making them too “hands on”. Read the full joint response here.
BBA Executive Director Simon Hills said: “It is right and proper that bankers with the most senior responsibilities should be held accountable for their actions. This is important both for the health of the banks but also in restoring public trust in the financial sector. We believe that the proposals as drafted could undermine the independence of non-executive directors by making them too ‘hands on’ which could reduce their ability to provide critical advice to bank boards and propose that guidance on the role of the non-executive director would help avoid this. It is also important that supervisors’ expectations of senior managers should reflect the business model of the bank – it would be disproportionate to apply the requirements in the same way to both the directors of a challenger bank and to the directors of a large internationally active bank.”
Bank shares rise on Friday after leverage review
The Bank of England announced its proposals for the UK leverage ratio on Friday. Its Financial Policy Committee announced that the biggest UK banks would have to hold capital of up to 4.05% of their assets from 2019 onwards, up from 3% now. That could be increased in boom times by an extra buffer of another 0.9%. The Weekend FT (£, p3) quoted the BBA welcoming the announcement saying that it “balances safety with the need to keep lending affordable for businesses and individuals”. Shares in a number of banks rose sharply following the Bank’s statement.
Browne on changes in banking
In an interview with the Scotsman, BBA Chief Executive Anthony Browne talks about how UK banks have changed since the crisis: “We don’t have these highly leveraged [debt-laden] businesses. They are a lot more boring than they were, and that is good because banks have a role to play in society. But we don’t want the stability of the graveyard where banks cannot do anything.”
Business Bank backing alternative lenders
The Sunday Times (£, p10) ran an interview with Business Secretary Vince Cable, about the British Business Bank and the alternative lenders it is looking to support. He says: “I used to be highly critical in general of the banks, of the culture, of the interest rate mis-selling, of the past. There are some positive things happening. What’s inhibiting the banks is not bloody-mindedness, but the fact that they have risk ratios inherited as a result of the Basel regulation.”
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