Private banks and wealth managers have a well-earned reputation for helping their customers manage their finances and plan for the future. One of their less well-known skills is advising their clients on how to give their money away.
The Fed announces the end of QE
All the main papers reports that on Wednesday the Federal Reserve voted 9-1 to stop itslong running bond-purchase program at the end of October. As the FT reports (£, p1) in a marked change of language the Fed highlighted an improvement in the US labour market, dropping its previous view that there was significant “underutilisation” of labour resources. The Fed kept its forecast of low rates for a “considerable time” but made clear that the clock starts ticking now for a future rate rise. (Times, £, p48), (WSJ, £, p1) (Guardian, p26)
Lord Hill says that the EU should not introduce a unilateral financial transaction tax
Lord Hill, Britain’s next European Commissioner has said a financial transaction tax should only be introduced at a global level, if at all. He added that this is not a view shared by many in the EU. Read the joint BBA, CBI and EEF letter on the proposed financial transaction tax here. (Telegraph, £, B1)
September mortgage approvals fall
The Bank of England Bankstats published yesterday reveal that UK mortgage approvals dropped to 61,267 in September, a 14 month low, adding to evidence that the housing market is cooling. The Bank of England data also showed the average interest rate on outstanding mortgages was 2 basis points down, to 3.2pc in September (Telegraph, £, B5). Commenting in the Daily Mail (p79) Richard Woolhouse, chief economist at the BBA, said: “We are now experiencing a steadier housing market, which is no bad thing given previous concern about the pace of property price rises.”
With all of the attention that bank branch closures have been getting in the media lately, it is important that we remind ourselves of the question that really must be answered – is there an acceptable level of access to banking in the UK that ensures no one is financially excluded?
Commenting on the latest Bank of England monthly Bankstats, BBA Chief Economist Richard Woolhouse said:
“The drop in mortgage approvals suggests that we are now experiencing a steadier housing market, which is no bad thing given previous concern about the pace of property price rises.
Cable steps in on branch closures
Following Lloyds Banking Group’s announcement yesterday that it was to close 150 branches, Business Secretary Vince Cable said that he would write to the large retail banks asking them to recommit to their “last branch in town” pledge. Mr Cable said: “As banks continue to modernise we must ensure that people in rural and smaller communities in particular continue to have access to the banking services they need” (Times, £, p39). The Business Secretary also called for the banking industry and the Post Office to work together to “ensure a long-term solution to financial access can be found using existing networks”, reports the Guardian (p21).
BBA Executive Director Eric Leenders appeared on the BBC 6 O’Clock (03.14), News at Ten and ITV News to discuss how “the technological revolution that is changing all of our lives” is impacting the way we bank. The BBC and ITV both used BBA figures that showed the growth in online and mobile banking. The FT (£, p1) also cites BBA figures which show that UK bank customers make almost £1 billion worth of mobile and internet transactions per day, whilst footfall in branches has fallen by 10% per year.
Banks to help those with mortgage shortfalls
The Telegraph (p1) reports that several major banks will write to elderly home owners to warn them if they face a shortfall once their mortgage ends. A number of lenders are in discussions to offer “lifetime mortgages”, where customers can continue to repay just the interest until their death. Ros Altmann, the Government’s adviser on older people said that “lenders are trying to keep people in their homes, rather than repossess them”. The paper states that there are around 130,000 interest-only mortgages due to expire each year up to 2020, with about half facing an average shortfall of £71,000.
Rates may stay lower for longer, warns Deputy Govenor
Sir Jon Cunliffe has signalled that interest rates may stay low for the foreseeable future, writes the Times (£, p41). Speaking at the Cambridge Society for Economic Pluralism, the Deputy Governor for Financial Stability said that weak pay growth and a stuttering global economy has caused him to rethink how long rates should stay at record low levels. Sir Jon added that understanding how employment has risen without causing inflationary pressures is “now key to deciding policy”. The Telegraph (B4) notes his suggestion that there has been little real wage resistance as workers believe that “pre-crisis pay levels are no longer achievable”.
Our banking behaviour continues to evolve, and with it, the range of different channels available to us for banking. Whether through bank branches, ATMs, the post office, online or mobile – our choice of banking channels is now greater than ever.
In all walks of life it seems that we are confronted by a tension between the need to have effective tools to tackle the problems presented by a minority of people that do not respect the law, with the rights and freedoms of the vast majority of law-abiding citizens.
Tax is just one such area where the problem of tax evasion and the desire to stamp it out has raised the possibility of encroachment on the rights and protections developed over centuries to safeguard the majority of citizens from abuses or arbitrary actions by government.
Fair and Effective Markets Review consultation published
The Bank of England published the consultation document for the Fair and Effective Markets Review last night. The consultation asks whether there is a need to strengthen criminal sanctions in fixed interest, currency and commodity markets, as well as to introduce punishments such as temporarily suspending companies’ or individuals’ permissions to trade in certain markets (FT, £, p1).
The paper quotes Minouche Shafik, Deputy Governor for Markets and Banking, as saying: “The first act of the review was to identify seven additional benchmarks which need to come into the regulatory perimeters. So we will look at regulatory options if we have to. But a big part of the problem really can be solved through market-led and firm-led solutions and we are keen to work with the industry to find these.” The Telegraph (B1) quotes Chancellor George Osborne as saying that he wanted the work to preserve “the UK’s position as the global financial centre for many of these markets.”
Responding, BBA Policy Director Andrew Rogan said: “This review will be crucial in helping to raise standards and improve trading practices. Trust is essential to markets which is why the industry has worked hard with the authorities to put in place reforms in recent years. Any further moves that help improve confidence in London as a place to do business will be welcomed. Our ambition is for markets in London to be famous for fair dealing and integrity and our members will work with the review to try to achieve that.”
Lloyds unveils three-year strategy
Lloyds Bank has announced its new three-year strategy in a plan that will see many of its operations automated. The Telegraph says the bank is targeting a £1 billion-a-year saving by the end of 2017, and will also put £1 billion into digital technology. The three-year plan will see an extra £30bn of lending put into the economy. Lloyds Bank Chief Executive António Horta-Osório said: “This is a highly competitive market and customers’ behaviour are changing. Increasingly our customers want to access our services in many different ways, via branches, via digital or via mobile.” Mr Horta-Osório said regrettably this would require 9,000 job cuts as the business was “digitised.”
Start-ups seek banking licences
The FT (£, p4) reports that Nazzim Ishaque’s Lintel Bank is among a number of start-ups seeking a banking licence from the Prudential Regulation Authority (PRA). Mr Ishaque, a former IT expert, plans to use online, phone services, a few branches and “cutting edge technology” to offer current accounts, mortgages and loans for small and medium-sized businesses. The paper adds that regulators have eased requirements for new banks, and five new banks were authorised by the PRA in the year following rule changes introduced in March 2013.
Click here for the BBA’s report “Promoting Competition in the UK Banking Industry.”
Price of CoCos expected to rise following stress tests
The Wall Street Journal (p23) says contingent capital bonds, or CoCos, were one of the winners of Sunday’s ECB stress tests, as the price of the bond rose yesterday as analysts predict the stress test result could spark a revival in issuance. Jeremy Smouha, from asset manager GAM said: “The increased transparency and comparability of banks’ balance sheets across Europe is definitely a positive sign longer-term,” said. With banks overall becoming safer, their junior debt [including CoCos] will also become safer”.
Prime Minister toughens stance on Brussels bill
David Cameron is bracing himself for a “bruising showdown” with Brussels after hardening his stance in a budget row with the EU, the Guardian writes (p9). Making a statement to the House of Commons yesterday, Mr Cameron said: “Britain will not be paying an extra €2 billion (£1.7 billion) to anyone on 1 December, and we reject this scale of payment. We will be challenging this in every way possible”.
Responding to the publication of the Bank of England’s Fair and Effective Markets Review consultation document, BBA Policy Director Andrew Rogan said:
“This review will be crucial in helping to raise standards and improve trading practices.
UK banks pass ECB stress tests
Shares in Banca Monte dei Paschi di Siena have been suspended this morning following the announcement of the results of the European Central Bank’s (ECB) Asset Quality Review (AQR) yesterday. It found that European banks need to adjust the value of their assets by €48 billion (£38 billion). The ECB will now require the 130 lenders who took part in the exercise to adjust the value of their assets in their accounts or prudential requirements.
The FT (£, p1) reports that nine Italian banks were among the 25 euro area banks – including three in Greece, three in Cyprus and two in Belgium – that failed the ECB health check. Of the 25 lenders that failed, the ECB said 13 still needed to address capital shortfalls even after taking account of actions they had taken since December 2013 – which was the cut-off point for the initial capital test. Four of these were Italian.
Harry Wilson welcomes the results in the Times (£, p47), “every British bank that took part passed and only Lloyds looked close to being troubled by the doomsday scenario employed to measure a lender’s ability to survive. In the case of Lloyds, a severe fall in the value of its mortgage-lending book resulting in the bank hitting a 6.2 per cent core capital level — which is still above the 5.5 per cent minimum — would require a property crash worse than anything even in the early 1990s, when home prices in Britain collapsed.” In the Telegraph (B2), James Quinn notes that the Bank of England’s own stress tests, expected later this year, are “likely to be much tougher.”
Labour and banks discuss “help to build”
Labour has held a meeting with high street banks to work out ways to increase lending to small housebuilders if elected next year, according to the Independent on Sunday (p7). The paper reports that Labour wants a “help to build” scheme if it wins the general election next year, a policy that would involve government underwriting bank loans to small house-builders with a turnover of up to around £20 million a year.
Banks invest in cyber security start-ups
The FT (£, p27) reports that banks are taking stakes in cyber security start-ups in the hope that they could play a key role in the fight against hackers. According to data from CB Insights, corporate venture arms have more than doubled their investment in cyber security in the past two years.
Ahead of the European Central Bank’s announcements of its stress tests of banks from across Europe, BBA Executive Director Simon Hills writes about what we can expect.
Lending stats show housing market slowdown
The BBA’s High Street Banking Stats for September – which show a cooling in the housing market – were reported in many of the papers this morning. The FT (£, p4) considered the figures alongside the CBI’s industrial trends survey and GDP figures and wrote that that they gave the impression “the speed of economic growth in the UK is moderating”. The Telegraph (p3) wrote: “Some experts have said that the housing market appears to be reaching the end of a cycle of strong price growth which has taken place as the economy has picked up and consumer confidence has shown signs of returning”. CityAM (p5) reported that the fall in approvals could be down to the Mortgage Market Review which requires lenders to gather much more information about prospective borrowers, stating that: “Economists have speculated that it could severely hit housing demand.”
Richard Woolhouse, Chief Economist at the BBA, said: “A year ago there were many of us who were concerned by the heady pace of property price rises. Today’s figures suggest we are now experiencing a steadier housing market and that’s no bad thing. There’s also some encouraging growth in business lending amongst manufacturers and retailers which is pleasing to see”. Read the full release here.
Bank of England plans to avoid bailouts
The Bank of England has laid out its plans to avoid future bank bailout scenarios in the event of another financial crisis. The new rules, to come into effect next year, mean that a bank’s creditors would need to absorb losses of at least 8% of total liabilities before any public support could be provided. Before that point is reached bondholders would be exposed to losses – referred to as “bail in” (Telegraph, p1). Other measures outlined by the BoE include powers to step in and take control of a failing bank over a 48 hour period – usually a “resolution weekend” – including the right to sack bank bosses on the spot and replace them with external executives (Times, £, p50). A bank could also be ordered to sell-off assets or transfer customers elsewhere. Andrew Gracie, executive director of resolution at the Bank of England, said: “The failure of these firms should have the same impact as that of the failure of any other institution – the rest of the system is not impacted and taxpayers do not bear the cost.”
The FT (£, p3) reports on the struggle to find a suitable cross-border strategy to maintain stability in the face of an international crisis.
Firms more diligent in reporting insider trading
The Times (£, p53) features figures from the FCA that show a quadrupling in the number of reports of suspicious activity since 2008. As firms respond to closer scrutiny a total of 1,912 tip-offs were made in 2013 compared to 558 in 2008. The regulator says that not all reports of insider dealing were found to be suspicious and that some activity was reported multiple times.
Housing market steadies as approvals fall
The BBA’s September High Street banking statistics provide further evidence of a cooling housing market, with approvals for new mortgages down 10% on levels seen last year. Approval levels of re-mortgages and equity release were also lower. The release also show that net lending to a range of business sectors – including retailers, wholesalers and manufacturer – has been growing consistently.
Richard Woolhouse, the BBA’s Chief Economist, said: “A year ago there were many of us who were concerned by the heady pace of property price rises. Today’s figures suggest we are now experiencing a steadier housing market and that’s no bad thing.” The release can be read here.
Lloyds to unveil new digitally focused strategy
The FT (p21) reports that Lloyds Banking Group will launch a three-year strategy to put mobile and internet banking at the heart of its business at its third-quarter results next week. The paper suggests the plan will lead to 9,000 job cuts - a 10% reduction in the group’s current head count. The bank already has 10 million users of internet banking services, including 4.5 million mobile banking customers. To read the BBA’s work on the take-up of digital banking click here.
Smaller banks deliver strong growth
The FT (£, p22) reports that Metro Bank has increased the number of its customers by 71% in just one year. Meanwhile, CityAM (p7) reports that Handelsbanken, the Swedish lender, has more than doubled business deposits in the past 12 months to £6.5 billion. Read the BBA’s report of the new generation of competitors shaking up the banking industry here.
ECB attacks claims 11 banks will fail stress tests
The European Central Bank has dismissed press reports that 11 banks from six countries will fail stress tests to be published this weekend: Telegraph (B1). The Spanish newswire EFE suggested that Greece and Italy both had three banks unexpected to be given a clean bill of health, alongside others from Austria, Cyprus and Belgium. In all, 130 organisations will be vetted by the ECB, with the results published at noon on Sunday. The ECB stressed that the reports were “speculation”.
Bailey acknowledges allowances may be paid this year
The chief executive of the Prudential Regulation Authority has acknowledged that banks may not heed guidance from the European Banking Authority over role-based allowances, the FT reports. While giving evidence to the Commons Treasury Select Committee, Andrew Bailey said: “It is too far into this year as a matter of good practice to change anything.” Mr Bailey has previously said that the debate about bankers’ remuneration is “misguided” and that variable pay is an important element of earnings.
Richard Woolhouse, Chief Economist at the BBA, said:
“A year ago there were many of us who were concerned by the heady pace of property price rises.
“Today’s figures suggest we are now experiencing a steadier housing market and that’s no bad thing.
“There’s also some encouraging growth in business lending amongst manufacturers and retailers which is pleasing to see.”
European bank resolution fund plan unveiled
France’s banks will pay the biggest bill for Europe’s banking union, and expect to contribute up to €2 billion (£1.6 million) more than Germany’s lenders towards a new €55 billion bank resolution fund, the FT writes (£, p8). Yesterday the European Commission unveiled plans to set contributions to the fund handling bank failures, which favours the hundreds of small and medium-sized lenders in Germany and Spain. Documents seen by the FT suggest that France will contribute €17 billion over eight years, representing almost 30% of the fund, while Germany will pay in about €15 billion, or 27%.
Warning on impact of new regulations
Douglas Flint, HSBC’s chairman, has warned that excessive regulations risk squeezing growth out of the global economy, CityAM reports (p2). Mr Flint said that regulators are so focused on stability that they are stopping banks from taking the risks that they need to lend to firms, creating jobs and growth. Giving evidence to the Lords EU Subcommittee on Economic and Financial Affairs yesterday, Mr Flint also attacked the “retrograde” bonus cap enforced by the EU and said restrictions on banker pay made it difficult to compete with other industries (Telegraph, B4).
Poland “in no rush” to join banking union
The FT (£, p8) writes that Marek Belka, Poland’s central bank governor, has criticised the Eurozone’s new banking union and argues that it would centralise powers to curb boom and bust that are better left to individual member states. Mr Belka said Poland was in “no rush” to join the scheme and there was no need for regulators in Warsaw to be replaced by counterparts in Frankfurt.
Doubt cast on government tax cut pledge
The Chancellor’s promise of tax cuts in the next parliament was left in doubt yesterday after it was revealed that the Treasury borrowed £11.8 billion to plug the gap between spending and tax receipts in September, the FT (£, p1) reports. The paper says in spite of Britain’s vigorous economic recovery, lower than expected income tax caused George Osborne to borrow £1.6 billion more than in the same month last year. The Guardian (p25) adds that news has lessened the chances of a pre-election giveaway at the Autumn Statement on 3 December.
It quotes a Treasury spokesman, who said that the Government’s long-term economic plan was working, with the UK economy growing faster than that of its G7 peers.
A bank loan or overdraft isn’t always the right way to prepare your business growth. Irene Graham looks at the increasing popularity of alternative finance to power small and medium-sized enterprises.
Regulator to begin work on capital rule early
The Basel Committee on Banking Supervision will start work on the calibration of the leverage ratio next year, sooner than expected, writes the FT (£, p22). The regulator’s secretary-general William Coen said: “We are publically committed to finalising it by 2017. I think there is an appetite on the committee to start that work sooner rather than later.” The paper suggests that the finished rule could be unveiled as early as 2015, but would not be formally enforced on a global level until 2018.
BoE payments system disrupted
The Bank of England’s CHAPS (Clearing House Automated Payment System) – which underpins large transfers between bank accounts – was down for more than nine hours yesterday following maintenance work over the weekend. The system, which last year processed £277 billion of transactions per day (FT, £, p1), had its opening hours extended to 8pm in order to complete delayed payments. The Times (£, p11) reports on the impact on house purchases, stating that “thousands of buyers were unable to get into their homes until today because of the disruption to their chains.”
Treasury Select Committee Chair Andrew Tyrie MP said: “The whole economy depends on a reliable payments system. We need to have confidence that the cause has been found and addressed” (Guardian, p3). Bank of England Deputy Governor Nemat Shafik will lead a review into the cause of the breakdown and the effectiveness of the Bank’s response.
Cunliffe warns on bankers’ pay
Sir Jon Cunliffe, Deputy Governor for Financial Stability at the Bank of England, said yesterday that bankers’ wages have failed to reflect a decrease in returns for shareholders since the financial crash, writes the FT (£, p2). He told a Chatham House conference that returns on equity seen before 2007 are unlikely to return, and that “in the new world, pay bills may well have further to adjust”. Sir Jon noted that since the crisis “employees have received a larger share of a smaller pie relative to shareholders” (Guardian, p19). He also stated that banks’ business models will change due to “lower levels of leverage, higher liquidity and the removal of the implicit taxpayer subsidy” (Times, £, p41).
Need for greater cooperation to fight cyber crime
The rising threat of cyber crime for banks is featured in a spread in the Sunday Telegraph (B6). It notes that banks have to fend off such threats every day and that increasingly they are being targeted by organised criminals and foreign intelligence services who want to disrupt financial systems. “It’s considered retaliation, many of these attacks are at such a level that they can only be done by nation states,” says Dr Alastair MacWillson, a cyber-security expert. The article cites a recent BBA report which calls for greater cooperation to fight the threat. Find out more about the BBA’s Financial Crime Alert Service.
Large regulatory fines continue to change bank behaviour
The FT (£, p17) looks at how many big banks are “retreating” and scaling down their global reach. It quotes Noor Menai, chief executive of CTBC Bank USA, warning that the rise of global fines means that many banks are simply exiting from more risky markets. “Given the almost biblical vengeance the regulators can extract from you – you have a risk heat map – it almost makes no sense to stay in those countries,” he said. The article notes that in their place large regional banks such as Saudi Arabia’s National Commercial Bank are expanding.
In Saturday’s Telegraph (p18) Richard Dyson looked at how members of the House of Lords have complained that anti-money laundering regulations are making it more difficult for them to get banking services due to them being classified as politically exposed persons. He accuses banks of over-zealous application of the rules, but notes that huge fines from regulators are in part responsible for driving this behaviour.
EBA threatens legal action over bank allowances
The Sunday Telegraph (B1) and the Mail on Sunday (p89) both reported on the ongoing row between UK regulators and the EU over bank bonuses. European Banking Authority Executive Director Adam Farkas told the MoS that his organisation would be prepared to take legal action if its new guidance on allowances is ignored. He warned: “If there is a breach of law then we have the legal power to initiate a breach of law action.” Simon Watkins argued “if genuinely tied to performance and subject to deferral and clawback, actually put the banker’s own money at risk. It means they can be held to account and, if found to have failed, to be hurt where it matters to them most… in the wallet.” (Mail on Sunday, p88). Ruth Sunderland described the EBA’s approach as “increasingly ham-fisted” in her column in Saturday’s Mail (p95).
Lynam: more change needed for challenger banks
In an interview with the Telegraph (B5), Paul Lynam, Chief Executive of Secure Trust, sets out three changes that smaller banks need to be able to grow. He says that the Government must deal with three barriers: access to the payment systems, the higher levels of capital smaller banks must put against their loans, and the cheaper cost of borrowing that larger banks enjoy as a result of implicit government support. The paper describes Secure Trust as “one to watch”.
Download the BBA’s Competition in Banking report.
Did you know that your credit card is protected against fraudulent transactions? The BBA’s Ian Fiddeman explains important updates to new lending code that extend this protection.
BBA Annual Banking Conference
Speakers at the BBA’s Annual Banking Conference yesterday have featured heavily in today’s news. Ross McEwan’s remarks that a rise in interest rates could threaten banks’ relationships with customers appear in the Telegraph (p5). The paper reports the RBS chief executive as saying his bank would sponsor a major piece of research on how customers would deal with higher interest rates. Speaking about customers’ concern over an upcoming hike in interest rates, the Guardian (p37) quotes Mr McEwan as saying: “This anxiety comes despite the fact that, like most banks, RBS and NatWest have stress-tested our customers’ affordability in the event of a significant rise in interest rates up to 7%.”
Economic Secretary to the Treasury Andrea Leadsom outlined plans for measures to support new entrants to the banking market (FT, £, p2). The minister said that there were currently as many as 25 new banks in conversation with the regulator. Ms Leadsom’s supportive measures include new legislation to require credit data sharing to allow challenger banks to conduct risk assessments of SME borrowers, and an agreement from the larger retail banks to publish borrowing figures by postcode to allow new banks to see “where action can be taken.”
You can read the BBA’s response to the HMT consultation ‘Competition in banking: improving access to SME credit data’ here and the BBA’s postcode lending figures here. You can also read our report on Promoting Competition in UK Banking here.
FCA Chairman John Griffith-Jones used his speech to raise concerns about the lack of new banking products being launched due to the adverse threat of regulation (Times, £, p49). Using the example of changes to pension rules next April, Mr Griffith-Jones cited the lack of new products coming onto the market for those who are no longer obliged to purchase an annuity. A lot of banks and insurers are unwilling to “dare” to bring out something new, he told the BBA conference. Mr Griffith-Jones reassured the industry, however, that the FCA had reached a “tipping point” whereby its focus of preventing markets working badly had now shifted to how to make them work well. Bill Michael of KPMG, another speaker at the conference, warned that the financial services sector could become paralysed because of the “suffocating level of regulation” but Lord Birt, former Chairman of the BBC and PayPal Europe, defended tougher regulation and compliance.
Also at the BBA conference:
EU bonus cap wrong
Andrew Bailey, chief executive of the Prudential Regulation Authority, has said that EU plans for a bonus cap are “the wrong policy” and could lead to unintended consequences (Telegraph, p5). Mr Bailey threw his weight behind George Osborne’s opposition to the plans, telling senior bankers at the Mansion House: “Let me be blunt, the bonus cap is the wrong policy. The debate around it is misguided and the best thing I can say about allowances is that they are a response to a bad policy”. His remarks follow moves by the European Banking Authority to clampdown on banks using role-based allowances in place of bonuses.
Read the BBA’s response to the European Banking Authorities report on discretionary remuneration practices here.
Fears over eurozone disrupt bond market
The front page of the Telegraph reports that deepening deflation across southern Europe has caused turbulence in the European bond market, with yields on 10 year German Bunds plummeting to an all-time low of 0.72%. Andrew Roberts, credit chief at RBS, told the paper: ”This is not going to stop until the European Central Bank steps up to the plate. If it does not act in the next few days, this could snowball”. According to the report French, Italian, Spanish, Irish and Portuguese yields diverged sharply from German yields in early trading spiking suddenly “in a sign that investors are again questioning the solidity of the monetary union”. At the same time Greek yields have soared over 300 basis point to 8.73% over the last month.
The Annual Banking Conference was held at The Brewey on the 16 October 2014.
Joint initiative aims to secure trust and confidence in banking
The BBA and the Chartered Insurance Institute (CII) today announced the launch of a new working partnership to promote and develop standards and skills in retail banking.
Bankers gather for BBA Annual Conference
Senior bankers are gathering today for the BBA Annual Conference to discuss how to build an industry that fuels economic growth, lends to businesses and helps customers. Keynote speakers include Economic Secretary to the Treasury Andrea Leadsom and Shadow Financial Secretary Cathy Jamieson. In today’s CityAM (p21) BBA CEO Anthony Browne outlines the themes of the conference, arguing that “whilst we must learn from the past, it must not shape our future. Lingering on those mistakes could limit our ambitions”. Anthony also appeared on this morning’s BBC Radio 4 Today Programme, where he emphasised the need to make sure the UK remains a global financial centre. To find out more about the BBA’s conference click here.
EBA calls curb on bankers’ use of allowances
The European Banking Authority (EBA) has written to the European Commission and national regulators claiming that a number of major banks are using pay allowances for their senior staff that breach EU rules on bonuses (FT, £, p2). The EBA’s opinion, which is not legally binding, acknowledged that “allowances are discretionary” but insisted “firms should behave in such a way to remain in line with the [bonus payment] legislation”. The Telegraph(B1) reports comments by chairman of the Treasury Select Committee Andrew Tyrie who said the move was “a fundamentally flawed approach”. Responding to the announcement a BBA spokesman said: “Any move which increases fixed costs and reduces the ability to use these tools… seems counterproductive”.
Customer switching growing at 22% higher than last year
The latest current account switching data, released by the Payments Council, reveals that more than 1.2 million customers have changed bank since the launch of the free-to-use service in September 2013. It also shows that customer switching is 22% higher than this time last year (Guardian, p36). The Payments Council noted that the switching data is limited to those who use the service to move account and “may not represent a complete picture of the current accounts acquired or lost by the banks.”
Markets hit by “flash crash” but UK employment still rising
The FT (£, p1) leads with the news that bond markets in the US and UK experienced a “flash crash” yesterday as investors reacted to concerns about Eurozone deflation and weakening global growth prospects. Falling Brent oil prices and a marked drop in US Treasury yields, from 2.18% to 1.95%, caused the FTSE Eurofirst 300 to drop by 3.2%, its biggest fall since 2011. CityAM (p1) reports that £46 billion was taken off the value of the UK’s blue chip equity market. The US S&P 500 also fell by 10%, removing the gains experienced in 2014.
Elsewhere, the FT (£, p2) reports that UK employment levels continued to grow with unemployment at a six-year low. Vacancies also rose over the summer. Despite the trend, the Bank of England has not indicated that it will end quantitative easing or seek to normalise interest rates.
What does MiFID II mean for your business? Avantage Reply’s Mohammad Adil urges companies to get ready for new regime.
Financial fraud in the public eye
Money Mail (p39) features a “fight the fraudsters special” which describes online fraud as the “21st century’s biggest crimewave”. The nine page spread gives examples of vishing, phishing and fake investment calls – all of which are included in the BBA’s Know Fraud, No Fraud campaign. BBA CEO Anthony Browne penned an article for Which? about the campaign – which aims to raise awareness amongst consumers of different types of fraud – highlighting eight things banks would never say or do, but a fraudster might. Meanwhile, the Courier and Advertiser (p18) cites the BBA’s campaign in an article on an Experian report which reveals that the rate of detected and prevented fraud across financial services products has increased year-on-year since 2013.
ECOFIN agrees data sharing laws
EU finance ministers yesterday agreed legislation that would require all 28 member states to disclose assets held by foreign EU nationals in their financial institutions. Under the law, participating countries would be required to automatically send data back to tax authorities in a European depositor’s home country, a requirement regarded as “one of the most powerful ways to prevent tax evasion”, writes the FT (£, p7). Le Monde reports on the current information sharing arrangements in Switzerland, Singapore, Austria and Luxembourg.
Commenting on ECOFIN’s agreement, a BBA spokesman said: “We welcome government efforts to clamp down on global tax evasion and our member banks have been working hard to support the development of a global standard for financial account information exchange, the Common Reporting Standard (CRS), to assist these efforts globally… However, we are disappointed that Europe’s finance ministers have not simply incorporated the CRS into the Directive on Administrative Cooperation (DAC), but have introduced the potential for a higher European standard within the DAC. This undermines the global CRS, even before its effectiveness has been evaluated.” The full press release can be read here.
Inflation falls to five-year low
The Consumer Price Index dropped to 1.2% yesterday – the lowest since 2009 – which “cemented investor expectations” that an interest rate rise will not come until after the general election next May, writes the FT (£, p2). The Telegraph (B1) notes that analysts predicted a fall of just 0.1 percentage point, and that markets only expect to see interest rates at 1% by December 2015. However, the FT argues that it is unlikely to change the views of the two MPC members who have called for an immediate rate rise. The Times (£, p41) observes that it is now unclear whether Britain or the US will be the first to tighten monetary policy.
Responding to the European Banking Authorities report on discretionary remuneration practices, a spokesman for the BBA said: “The British banking industry has made great strides in recent years to reform the way in which highly paid staff are remunerated.
The BBA comment on ECOFIN’s agreement of a revised Directive on Administrative Cooperation 2 (DAC2), to integrate the OECD’s global standard for automatic exchange of financial account information for tax purposes into EU law.
For years banks have battled to balance making their online payments system easy to use but also safe. Now Apple faces the same challenge, writes Aspect Software’s Keiron Dalton
BBA launches Know Fraud, No Fraud campaign
Yesterday the BBA launched a new campaign to help members of the public identify when they’re being scammed. Chief Executive Anthony Browne announced the campaign on the BBC Radio 4 programme You & Yours where he listed the 8 things your bank would never ask you (but a fraudster might). The campaign was picked up by BBC News who cite the BBA’s YouGov polling revealing that millions of people are inadvertently leaving themselves open to being scammed. This Is Money reported that the banks and the BBA have produced a new leaflet with real life examples of some of the most prevalent scams, to go into branches and police stations across the country. Anthony was also interviewed on the Radio 2 Simon Mayo programme and the BBA’s Head of Campaigns, Fiona McEvoy appeared on a range of local radio stations including BB WM and BBC Cumbria.
You can read the new leaflet and find out more about the campaign here: www.knowfraud.co.uk.
FSB outlines new shadow banking repo rules
The FT (£) splashes on the news that the Financial Stability Board (FSB) has published a framework imposing new minimum requirements on the shadow banking sector when it makes short-term loans secured by stocks or bonds from banks. The FSB now wants a minimum 1.5 per cent “haircut” for corporate bonds with a maturity of between one and five years, up from 1 per cent before, and a 6 per cent haircut for equities, instead of 4 per cent previously. The latter would mean that a borrower would have to post $106 of equity collateral for a $100 loan. Daniel Tarullo, chairman of the FSB Standing Committee on Supervisory and Regulatory Co-operation, said: “Securities financing transactions such as repos are important funding tools for a wide range of market participants, including non-bank financial firms. The implementation of the numerical haircut floors on securities financing transactions will reduce the build-up of excessive leverage and liquidity risk by non-banks during peaks in the credit and economic cycle.” In the Lombard (£, p23) column, Jonathan Guthrie describes the move as “gently tilting a skewed regulatory framework a few inches back in favour of conventional banks”. Robert Peston also blogs (BBC Online) on the new rules questioning whether in the long term it is healthy to discriminate in favour of government debt.
Online wealth managers increase competition in the private banking market
The FT (£, p25) looks at the rise in online wealth managers and their challenge to the more traditional private banking industry. It reports, “Rising demand for online and mobile services and the increasing expense of gaining financial advice have created an opportunity for these start-ups.” It quotes BBA statistics that show that nearly 40m mobile and internet banking transactions were made each week in 2013 and banking mobile applications were used 18.6m times a week – more than double the number in 2012. The article quotes Joe Norburn, head of digital at Coutts who said: “We haven’t seen a material impact just yet; but we can’t rest on our laurels and assume that will be case going forward.” Coutts is planning to unveil digital tools next year to help customers plan their wealth goals and portfolios.
Read the BBA’s recent report on what the private banking industry brings to the UK – “A wealth of opportunities”.
Commentators react to Carney’s “reckless” banking speech
A number of commentators follow up on Mark Carney’s remarks that the new criminal sanctions for “reckless” bankers would end the injustice of bank executives not being punished after the financial crisis. Alastair Osborne warns in the Times (£, p39) that “the risk is that the endless regulation keeps the talent out.” In the Guardian (p29) Nils Pratley argues, “if reform means that a chief executive can lose part of his pension if he is responsible for stuffing punters with crass products such as payment protection insurance, so be it. Most people would regard that as a reasonable way to encourage better banking.” In the Mail (p67) Alex Brummer writes that, “Carney deserves praise for arguing that if senior bankers are unhappy with regulatory change then they should resign. “
There was new SME borrowing in Q1 of £349 million and in Q2 of £408 million, the highest quarterly amount we have seen in this data series, some 29% more than in the same quarter a year earlier. The approval rate for SME loans continues to run at 9 out of every 10 applications.
The construction and real estate sectors, which account for half of all existing borrowing, are seeing their borrowing stocks reduce markedly as larger corporate businesses repay borrowing to deleverage, use alternative finance or bank debt is written-off.
The BBA is launching a fraud awareness campaign as YouGov polling reveals that millions of people in Great Britain are unwittingly leaving themselves vulnerable to scams perpetrated by fraudsters posing as their bank.
The poll assessed customers’ responses to some of the common tactics used by criminals, over the phone, via email or via text. Based on the answers, the BBA calculates that people all over the country could fall foul of the most prevalent frauds around:
Concerns that Bank could hike new leverage ratio
The Bank of England’s Financial Policy Committee will meet this week to discuss where to set the new leverage ratio with an announcement due later this month. The FT (£, p3) reports that some are speculating that it could be set as high as 4-5%. The top five UK banks would have to raise £46bn by the end of this year to reach a 5 per cent leverage ratio, falling to zero over three years, according to Morgan Stanley analysts. The article references the BBA’s submission to the Bank of England which warns of “unintended consequences” of a high leverage ratio which could incentivise banks to prioritise riskier lending. “The potential risks and uncertainty for the housing market in particular should not be underestimated,” said Robin Fieth, the chief executive of the Building Societies Association.
Farage offers to do a deal with Conservatives in return for 2015 EU referendum
Nigel Farage told the BBC’s Sunday Politics that he would consider entering a ‘confidence and supply’ arrangement with the Conservatives after the next election in return for “a full, free and fair referendum on our continued membership of the European Union. I’m not prepared to wait for three years. I want to have a referendum on this great question next year… Sometime in July next year strikes me as a very good time to do this.”
In the Mail on Sunday a Survation poll put UKIP on 25% of the vote with Labour and Conservatives on 31%. If replicated in a General Election this could see the party win over 100 seats. In the same paper, James Forsyth, reported that Cabinet Ministers are warning that if the party loses the upcoming by-election in Rochester that there could be a leadership challenge to David Cameron. Amid rumours of more defections to come, according to calculations by the academic Matthew Goodwin for the FT (£, p2), four Conservative constituencies – Amber Valley, Cleethorpes, Bury North and Dudley South – face a Ukip threat so strong that defection could be the sitting MPs best strategy for survival.
Twitter introduces tweet payments in France
According to the FT (£, p19) Twitter has teamed up with French banking group BPCE to allow its users to tweet money to each other. S-money, a division of the second-largest French banking group by customers, Groupe BPCE, has teamed up with Twitter to offer the service which will be available to anyone with a bank account and a Twitter handle in France.
Carney tells bankers to embrace new rules or quit
The Telegraph (B1) reports that Bank of England Governor Mark Carney defended new rules to make senior bankers more personally responsible for behaviour in their banks. He told the IMF annual meeting, “If you’re chair of an audit committee, you have responsibility for the activities of an institution. And if you don’t think you can discharge that responsibility, you shouldn’t be on that board.”
Bowe named as chair of new banking standards board
Dame Colette Bowe has been named as the first full-time chair of the Banking Standards Review Council (BSRC). She told the FT (£, p2) that the task is “the most worthwhile thing I can think to do”. The former chairman of Ofcom will assume the role on November 1, taking over from the former CBI Director General Sir Richard Lambert, who served as acting chair. The BSRC has been set up to improve professional standards across the industry and improve the culture of banks.
The BBC cites Anthony Browne, the Chief Executive of the BBA, saying: “Dame Colette’s appointment by a committee headed by Mark Carney demonstrates the importance of the new Banking Standards Review Council. The industry stands ready to assist her to help it bring about the improvements in standards we all want to see.”
Osborne warn on Eurozone growth
George Osborne yesterday warned that the UK economy is at a “critical” juncture due to increasing concerns that the European Union is close to sliding into a triple-dip recession, the Daily Mail (p2) reports. The Chancellor’s warning comes amid a gloomy outlook from the IMF, which said that the EU was facing a period of deflation and slow economic growth similar to that seen by Japan in its “lost decade”. Read the BBA’s plan to boost economic growth in the Eurozone here.
Home loan lending cools after new regulation
Mortgage lending to first time buyers has fallen for the first time since January, according to Council of Mortgage Lenders figures reported in the Times (£, p44). The number of loans to all home movers weakened for the first time in five months, sliding by 3% to 36,500. The paper said that experts attribute the decline to new rules from the Financial Conduct Authority that aim to limit risky lending and those from the Bank of England’s Financial Policy Committee which hope to limit high loan-to-income deals.
BBA Chief Economist Richard Woolhouse said:
“This data gives a close-up view of SME and personal borrowing right across Great Britain. People can use it to look-up what the picture is like near them.
“When we look up and down the country, we can see a good spread of lending. That’s important for individuals, businesses and the wider economy.
“It’s difficult to draw firm conclusions about demand for a number of reasons, but lenders are publishing these figures in a clear commitment to greater transparency.”
Investors criticise change in derivatives aimed at curbing damage from bank failure
The INYT (£, p18) and the FT (£, p21) report that this weekend it is expected that 18 of the biggest international banks and regulators will agree on a change to derivatives that is intended to contain the damage caused by a future collapse of a large bank. However the new rules have led to a warning from institutional investors and pension funds. Investors have warned that they may resist new protocols to rewrite derivatives contracts as they may clash with their clients’ interests. Tracy Alloway and Tom Braithwaite (FT,£,p21) look at the issue in more detail noting that critics have said the industry-led rewrite is a “piecemeal solution that could end up exacerbating a future run on banks”.
Eurozone growth concerns
A number of the papers cover the IMF’s “Global Financial Stability Report” published yesterday which notes that many banks in the Eurozone lacked the “financial muscle” to boost regional growth. José Viñals, the IMF’s Financial Counsellor said that although trading banks were safer, thanks to capital requirements many banks “do not have the financial muscle to provide enough credit vigorously to support the recovery”. (Times, £, p44) The Guardian also reports Viñals’ concerns that more risks are shifting into the shadow banking system in the form of rising market and liquidity risks and that “if left unaddressed, these risks could compromise global financial stability”(Guardian, p27). The Times also reports that yesterday President Hollande appealed to EU leaders to ease austerity rules underpinning the Eurozone because excessive focus on deficit cutting was stifling economic growth (Times, £, p38)
EU Tax sharing agreement could be agreed next week
Reuters reports that agreement could be reached at next week’s Ecofin meeting on cross border exchange of tax information. The European Commission wants all 28 EU member states to strengthen rules on how income on savings in bank accounts is taxed, including an automatic exchange of information about which account holders receive what interest payments.
Lord Hill confirmed by MEPs
The UK’s Lord Hill has been confirmed as the EU Commissioner for financial services by members of the ECON Committee, with a margin of 45 to 13, writes CityAM (p2). Former French finance minister Pierre Moscovici was approved by 44 votes to 12 as Commissioner for Economic and Monetary Affairs. While both portfolios remain unchanged European Voice notes that with the rejection of the Slovenian Commissioner-designate Juncker may be forced to reshuffle his College portfolios. MEPs will vote to approve or refuse the College of Commissioners on 22 October.
Banks write new rules on derivatives
Eighteen bank “dealers” have agreed new plans which will prevent counterparties terminating derivatives contracts in the event of a bank failure, according to the FT (£). The discussions – which were led by the International Swaps and Derivatives Association – will make it easier to resolve a future failing institution and will come into force on 1 January 2015. One source close to the negotiations told the paper that it was an important step in ending “too big to fail” as “you have the financial sector absorb the losses but you have the company stay in business”.
New rules will make it easier to clawback incorrect payments
A number of banks have introduced rules which will allow them to clawback cash which has been paid into an account unintentionally, reports the Mail (p38). Lenders will notify a customer who has received an accidental payment, and if they do not respond then the money will be automatically returned to the sender or ring-fenced so it can’t be spent. The article cites BBA research which shows that the use of mobile banking apps doubled to 18.6 million per week last year, and that by 2017 60% of all transactions will be done on apps or over the internet.
Lord Hill set to win confirmation
Following his second hearing in front of the ECON Committee yesterday, Lord Hill is expected to secure his nomination as the EU’s financial services commissioner, writes the FT (£, p8). After a more “assured” performance with an improved technical knowledge, senior MEPs said that he was “on the brink of being approved”. The Times (£, p2) reports that MEPs voiced concerns over his previous job as a financial lobbyist, but that he was “applauded for voicing strong pro-EU beliefs”.
The Telegraph (B1) suggests that the Tory peer could lose powers over banking regulation due to anger over the “double majority” voting system – which requires both Eurozone and non-Eurozone countries to support financial legislation – secured by the UK last year. Green MEP Philippe Lamberts said: “He is too close to David Cameron and can’t do this job. There needs to be a reshuffle of responsibilities.” However, the FT quotes senior liberal MEP Sylvie Goulard who said: “We think it is unfair just to reject him because of his passport.”
MEPs will vote to approve or refuse the 27-member commission on 22 October. Uncertainty remains over a number of positions after Hungary’s nominee, Tibor Navracsics, was rejected for the post responsible for education, culture, youth and citizenship.
HSBC directors resign over PRA rules
The FT (£, p1) writes that two HSBC UK board members have resigned over new rules which could see senior bankers jailed in the event of misconduct in the area their responsibility. One senior banker told the paper: “This is an industry concern. A lot of people are saying they won’t join bank boards or won’t stay on them.” Treasury Select Committee chairman Andrew Tyrie MP said: “The crisis showed that there must be much greater individual responsibility in banking. A buck that does not stop with an individual often stops nowhere.”
Bank of England proposals for structural reform
A number of the papers report on yesterday’s announcement from the Bank of England which published proposals “to improve the resilience and resolvability of deposit-takers”. The FT (£, p3), however, said that banks were still in the dark as the amount of capital a ringfenced firm has to hold remains undefined, as does the Bank’s leverage ratio. Banks have until 6 January to submit formal proposals on ringfencing. The article reports that non-executive directors will be needed to oversee the ringfenced operations, adding £1-2 million a year to banks’ running costs. Additionally, no more than a third of a ringfenced bank’s board can be employees or directors of another part of the banking group. There was an acknowledgement from the central bank that the EU’s own structural reforms might affect UK plans.
The Bank also announced that deposits of up to £1 million will be protected in certain circumstances if a bank collapses under the Financial Services Compensation Scheme. The Telegraph (B1) reports that currently the scheme protects £85,000 but it will be extended to people who temporarily have a larger amount in their account for defined reasons such as if they are buying a house, have received a life insurance payout or if they have been granted compensation.
Regulators and chief executives meet to discuss cyber concerns
New York’s banking regulators are to meet with the chief executives of a number of financial institutions to discuss the cyber threat following an attack on JP Morgan Chase’s systems on Thursday which compromised the personal details of 76 million households (FT, £, p20). Superintendent Benjamin Lawsky of New York’s Department of Financial Services said that such cybercrime “isn’t just an issue that should be on a list of problems and things to worry about and work on”. He also said that “the cyber threat has to become urgent, one of the most important issues facing financial services chief executives. It is not an IT problem, it is a bank problem”. Mr Lawsky also questioned whether, as regulators, they should be considering the cyber threat as something as fundamental to institutions as capital levels.
This year the BBA published a new paper on the issue – The cyber threat to banking: A global industry challenge – as well as holding the first in a series of conferences on the global cyber risk to banking. You can read more about the work being done in the UK here.
Rise in internet and telephone fraud
Financial Fraud Action UK published figures from the banks that show a 59% increase in telephone and internet banking fraud, with £35.9 million of losses in the first six months of the year (FT, £, p20). Following an increase in “vishing” or “voice phishing” – where criminals urge bank customers to call the number on the back of their credit card to validate the call, then keep the line open and play a dial tone to their victims so that they can pretend to be bank customer services – the banks have called upon telecoms operators to reduce the amount of time people can stay on the line. According to the article, the telecoms companies are hoping to reduce the time by next year.
Richard Woolhouse, Chief Economist at the BBA, said:
“Credit card borrowing is now rising faster than at any time since the height of the financial crisis. That suggests consumers are feeling more optimistic about their economic circumstances and the strength of the recovery.
“It’s also striking that more than 42% of all borrowing on cards incurs no interest at all – a proportion that has risen from 34% just two years ago.
“This shows how many of us are using credit cards to give us more control over how we manage our finances without being charged for doing so.”
After years of contraction, the number of staff at Britain’s retail banks is finally rising again. Anthony Browne explains why that’s good news for our economy and communities across the country.
Private banks contribute £3 billion to UK plc
Britain’s private banking and wealth management industry (PBWM) now oversees more than half a trillion pounds, according to the BBA’s new in-depth report into the sector covered in the FT(£, p20) and the Independent. The wide-ranging report shows that the sector, including its 23,000 staff, pays £1.2 billion a year in tax and contributes more than £3 billion to the economy.
Citywire have posted a slideshow showing many of the findings of Oxford Economics research included in the study, demonstrating the wide-ranging contribution the sector makes to UK GDP. The subscriber only site Wealth Bulletin also covered the report extensively.
Anthony Browne, the Chief Executive of the BBA described the PBWM, as “one of our country’s hidden success stories. It is an area in which Britain is a world leader and which creates a wealth of opportunities for people right across the UK. Our report also shows how the benefits of private banking reach well beyond those who use these services, helping our country to attract and retain inward investors- creating jobs and growth.”
FPC takes new powers of mortgage lending, BBA welcomes faster leverage ratio timetable
The Bank of England’s Financial Policy Committee (FPC) has asked for new “powers of direction” over the mortgage market. Under its plans, it will be able to impose limits on the amount people will be able to borrow compared to their salaries and the size of their deposit. (Telegraph, B3) It will also be given powers over the buy-to-let sector for the first time. The BoE plans, which will be subject to consultation, are expected to come into force before the end of the current parliament. In its first annual assessment of the Help to Buy scheme the FPC stated that it did not believe that the scheme posed a threat to financial stability.
The FT (£, p2) reports that the FPC also said that it would bring forward the announcement of the calibration of the leverage ratio imposed on banks to the end of October. Reuters quotes BBA Executive Director Simon Hills, welcoming the move, “Addressing this issue sooner rather later will bring helpful clarity to investors as well as banks, but ultimately this will be a decision for government which should take into account the impact of the proposal on economic growth”.
Political tensions grow in Brussels over Commission hearings
The French nominee to the European Commission Pierre Moscovici faced a “tough” hearing in the European Parliament yesterday as political tensions in Brussels escalated. The Guardian (p30) reports that this has led to rumours that there could be a reshuffle of portfolios for the Commissioners. The FT (£, p10) reports that Downing Street has signalled it would not accept Lord Hill being given a different portfolio.
Virgin IPO boosts Treasury coffers and banking competition
The Independent (p57) reports that Virgin Money has announced plans to float on the stock market which could return as much as £50 million to the taxpayer. Virgin said the latest contribution as a result of the flotation would take the total paid to the Treasury to £1.02 billion of the money used to purchase Northern Rock in 2011. Virgin Money said it was “uniquely placed to provide effective competition to the large incumbent banks in the UK”. (p57). In the Mail, Alex Brummer writes that, “Britain’s growing band of challenger banks that includes the recently floated TSB, Virgin and soon-to-be hived off Williams and Glyn’s have a wonderful opportunity. Faster switching means that a great deal of the hassle involved in changing banks has been removed.”
The Telegraph reports that Aldermore has unveiled its price range for its stockmarket float, valuing the lender at around £800 million. The challenger bank is looking to raise £75 million in new funds from the IPO.
On Monday Professor Russel Griggs, the independent external reviewer of the Appeals Process for small business lending, launched his first quarterly report of 2014. His numbers show that thousands of SMEs have used the Appeals Process successfully to obtain the finance they need.
BBA Executive Director of Business Finance Irene Graham’s blog sets out a simple step-by-step guide on how the Better Business Finance website that could help you launch an appeal.
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