11th July 2014

BBA Brief – 11 July 2014

FPC looks at toughening up the leverage ratio

The Bank of England’s Financial Policy Committee (FPC) has today released a consultation paper on a review of the leverage ratio.   The consultation will report back fully in November but the FPC is consulting on whether it should be given the power to vary the leverage ratio over time as a key tool of macroprudential policy.  The FPC also states that it is “minded to recommend to HM Treasury that it be granted powers of Direction over all components of the leverage ratio framework that are not harmonised under European Union (EU) legislation…The leverage ratio framework could be applied to a subset of firms only, during any transitional period.” (Reuters)

Fines should not damage stability, says Bailey

Andrew Bailey, head of the Bank of England’s Prudential Regulation Authority, spoke out yesterday to say that fines imposed on banks for misconduct should not “undermine financial stability” (FT, £, p3). His comments came in the wake of US fines on BNP Paribas totalling $8.9 billion (£5.2 billion). Mr Bailey said that he was working with his counterparts in the FCA to assess what fines were coming down the line, but there was some difficulty gauging the impact of penalties when stress-testing banks’ financial strength. Answering questions after a speech in London, Mr Bailey said: “We do have to be very clear that actions are taken which do not undermine the stability of the financial system.”

The FCA said that in 2013-14 it levied fines totalling £425 million – a record for the regulator.

In the US (FT, £, p22) banks are facing new uncertainty after the BNP Paribas case revealed some divergence between enforcement officials on how penalties are determined, making sanctions hard to predict and creating new risks for banks. Though the US Treasury Department’s Office of Foreign Asset Control (Ofac) would ordinarily administer policy in this area, including calculating fines, the BNP case saw other agencies like the Department for Justice “ratchet up their penalty in unprecedented ways.”

Andrew Bailey also said that the Bank would step in if lenders were deemed to be underestimating how risky their loans are. Mr Bailey said that banks with inadequate risk weights may have to cede power to the regulator (FT, £, p5).

Banks update branches in-line with consumer behaviours

The FT (£, p4) reports on Barclays’ plans to modernise branches by giving 6,500 cashiers new positions focused on giving customers advice about their finances. Staff will still be on-hand to process transactions for those who prefer not to use digital or self-service machines. The move comes as a result of banks noticing a change in behaviour from customers who are increasingly using their branches for bigger decisions such as mortgage applications and investments rather than day-to-day transactions.

The article goes on to quote the BBA’s new report It’s In Your Hands – released earlier this week – revealing that internet banking transactions are now worth almost £1 billion each day. You can read the latest The Way We Bank Now report here.

Portuguese bank troubles international markets

Shares in one of Portugal’s biggest banks – Banco Espirito Santo – slumped by 19% before the country’s regulator suspended trading yesterday. International bond and share markets felt the reverberation as investors lost faith in the lender, sparking a sell-off and fears of a new eurozone crisis. According to the FT (£, p1) the Bank of Portugal has said that “the solvency of Banco Espirito Santo is solid”.  The sell-off also prompted the International Monetary Fund to issue a statement: “The Portuguese banking system has been able to endure the crisis without significant disruption, aided by substantial public capital support and extraordinary measures from the ECB. However, as the Bank of Portugal acknowledges, pockets of vulnerability remain” (Times, £, p37).

Stat of the day

There are 7 million daily log-ins to internet banking services (BBA report It’s In Your Hands)

Today’s diary

Business, Innovation and Skills Committee: Royal Mail Privatisation report

Council Working Party on Data Protection

Bank of England Consultation Paper: The Financial Policy Committee’s review of the leverage ratio [See release here]

In brief

The FT (£, p21) writes about the threat online fraud poses to the digital advertising market, which is increasingly being exploited by criminals.

The Daily Express (Scottish Edition, p2) reports comments made by UBS suggesting that savers would be reluctant to keep their deposits in the country without the Bank of England to back them up.

The Bank of England’s Monetary Policy Committee are expected to be divided soon over raising interest rates as the bank held interest rates at their five-year record low yesterday (Telegraph, p4).

The number of remortgages completed in May were 26% lower than in the same month last year, according to figures published by the CML (Mail).

The Church of England has sold the indirect stake it owned in Wonga, the payday lender. A year ago it was revealed that the Church’s venture capital investment portfolio held a stake in Accel partners, one of Wonga’s biggest backers (Guardian).

The FT writes that three of Malaysia’s biggest financial institutions – CIMB, RHB Capital and Malaysia Building Society – are in talks to join forces in a move that would create the country’s largest bank (FT).

What the commentators say…

In the FT (£, p15) Joe Zhang warns against indulging China’s “bloated banking sector” amid threats of a credit bubble, saying that it is one country where austerity measures are sorely needed.

Emma Jacobs writes in the FT (£, p16) about what banks are doing to nuture new recruits. The article is the first of a new series about young bankers.

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