10th November 2015

BBA Brief – 10 November 2015

Banks told to raise over one trillion in convertible debt in an attempt to end “too big to fail”

There is widespread coverage of the Financial Stability Board’s final proposals for Total Loss Absorbing Capital (TLAC). According to the FT (£, p17) TLAC will put the onus on creditors rather than tax-payers by requiring banks to raise significant levels of debt which can be converted to equity when a bank fails. The FSB will give its plan to the G20 this month which contains recommendations for TLAC to be set at 16 per cent by 2019, rising to 18 per cent by 2022. Commenting on the proposals, Mark Carney, Chair of the FSB and also Governor of the Bank of England, said “these proposals will help change the system so that individual banks as well as their investors and creditors bear the costs of their own actions”.

The Telegraph (B1) says that the requirements will be felt most by banks in emerging markets like China if their regulators abide by the new proposals.

Prime Minister sets out his EU reform agenda

The Prime Minister David Cameron set out his EU reform agenda this morning in a speech at Chatham House (BBC). The speech comes ahead of a letter which will be sent to Donald Tusk, European Council President. The Prime Minister said that EU reform is “not an impossible task” and laid out four objectives that lie at the heart of the UK’s renegotiations: protecting the single market, boosting competiveness, exempting Britain from “ever closer union” and restricting EU migrants access to in-work benefits.

Several papers cover the Prime Minister’s speech at the CBI’s annual conference yesterday during which he was interrupted by two protestors connected to the Vote Leave campaign (FT, £, p3). Writing in the Telegraph, Chuka Umunna accuses Brexit campaigners of “behaving like gangsters, trying to close down the debate with behaviour that has no place in public life” (Telegraph, online only).

Worries about cyber security increase in wake of GCHQ warnings

The FT (£, p2) covers warnings from GCHQ director, Robert Hannigan, that the market for cyber security may be failing to address the challenges facing western countries. The paper reports that Mr Hannigan will say “it is time to take a hard look at whether the international market for cyber security is working sufficiently well”. The Daily Mail (p12) looks at the increase in attacks on targets with national security importance which has doubled since last month.

The warnings come as Apple CEO Tim Cook has weighed in on the debate over the level of access which security agencies should be granted saying “any back door is a back door to everyone” (Telegraph, p1).

Today’s diary

Chancellor George Osborne speech on priorities for Spending Review

House of Commons: Immigration Bill Committee Stage

House of Commons: Business, Innovation and Skills Committee digital economy hearing

House of Commons: Treasury Select Committee hearing on HMRC annual report and accounts

House of Commons: rises for Autumn Recess

House of Lords: Finance Bill 2nd and 3rd reading

Bank of England: quoted rates October

Stat of the day

$3.7 trillion – The World Economic Forum’s estimate of annual global infrastructure investment needed (FT, £, p10)

Latest from the BBA

SMR Responsibility Mapping Workshop, 17 November. Under the new accountability regime, the regulator requires each bank to maintain and update a document that describes each bank’s management and governance arrangements. This workshop shows you how to understand, apportion and map your responsibilities. To register your place, click here.

Latest from our sponsor – Jaywing

Ben O’Brien, Risk Practice Director at Jaywing, writes about the annual cyclical stress test by the Bank of England.

In brief

Patrick Jenkins writes in the FT (£, p18) that “cultural indecisiveness” is responsible for the continued poor performance of Europe’s banks.

A new report from recruitment consultancy Robert Walters shows that “compliance hiring has been a priority for banks and financial institutions throughout 2015 (CityAM, p5).

Eurogroup Ministers give Greece one week to implement outstanding economic reforms as a pre-condition to the first bailout payment (Financial Times, £, p6).

Credit ratings agency Moody’s has warned that global economic stability is at risk from a combination of the slowdown in emerging markets and the inability of central banks to act due to a “lack of ample fiscal and monetary policy buffers” (CityAM, p1).

A new survey from YouGov commissioned by easyJet has found that 70 per cent of SME CEOs say the UK’s membership of the EU has no effect on their business planning (Telegraph, B1).

The OECD has cut its global growth forecast citing a slowdown in world trade prompted by poor performance in China and other emerging markets (FT, £, p6).

The Catalonian Parliament voted yesterday to start the process of breaking away from Spain (El Mundo).

What the commentators are saying

In the first of the FT’s Beyond Banking series, Patrick Jenkins and Martin Arnold (FT, £, online only) look at the run of bad banking news recently and ask whether banks are adjusting to new regulation or if the industry is in terminal decline.

Daniel Davies, research advisor at Frontline Analysts, argues in the FT (£, p13) that red tape and expense in Europe’s equity markets exist for a reason and that the push for deregulation always increases the risk of scams.

The FT Lex column (£, p16) looks at the new TLAC requirements and argues that “too big to fail” will only be defeated when a big bank fails and is successfully resolved.

If you have five minutes

The FT looks at the worldwide shortfall in infrastructure investment and what can be done to bridge the gap (£, p10).

Larry Elliott and Jill Treanor of the Guardian (p33) are granted special access to the Bank of England and ask whether the institution has gotten any better at spotting looming crises.

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