12th February 2016

BBA Brief – 12 February 2016

Britain faces battle with France and Germany over City rules

The UK government is said to be facing opposition from France and Germany over its reform proposals that would enable the City to diverge from the eurozone’s financial rules (FT, £, p6). Ahead of next week’s EU summit, Paris and Berlin are reportedly concerned that the plans could undermine the single market for financial services by enabling the UK to implement different standards on issues such as bank structural reform and capital standards. Former MEP Baroness Bowles said: “The EU treaties no longer fit as a construct as far as the needs of the euro area are concerned. We need to regularise that, but in a way that is not unfair to others. It’s a two-way street.”

Markets slump over negative interest rate fears

Gold had its best single day rise since the financial crisis in 2008 yesterday and shares worldwide dropped sharply as investors sought refuge in so-called safe haven asset classes (Times, £, p2). City AM (p9) reports that the sell-off continued in the US overnight as Federal Reserve Chair Janet Yellen stated that the central bank is looking at negative rates “because we would want to be prepared in the event that we needed to add accommodation.” The Telegraph (B4, paper only) notes that the stock market volatility has led to Britain’s borrowing costs hitting an all-time low this week, which will help the Chancellor balance the public finances ahead of next month’s Budget.

EU regulator defends rules on failing banks

Elke König, the leading eurozone official responsible for applying new rules for failing banks, has rejected calls from Italy for the measures to be reconsidered, saying that they are an “intended game-changer” aimed at preventing the need for future taxpayer bailouts (FT, £, p7). The new rules require that 8 per cent of a failed institution’s liabilities are wiped out before it can receive support, which places a far higher barrier than before. Jeroen Dijsselbloem, Chair of the Eurogroup, said after the group’s meeting yesterday that the rules would be implemented as agreed, though repricing risks could be a consequence of the Bank Recovery and Resolution Directive (EU Business, online only).

Latest from the BBA

Adrian Buckle, Chief Economist at Payments UK, blogs about a new report on How consumers around the world make payments

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Today’s diary

ECOFIN

EBA Consultation on Guidelines on the treatment of CVA risk under SREP closes

Stat of the day

£64,400 – the amount a person starting to rent now will on average have to pay before purchasing a house (Source: Association of Residential Letting Agents).

In brief

Sir Iain Lobban, the former head of GCHQ, is to help insurance broker Marsh draft a report on cyber resilience for TheCityUK (FT, £, p4).

A group of developers have released a rival version of the Bitcoin code. Known as Bitcoin Classic, it doubles the size of the “blocks”, or records of transactions, that are entered into the public ledger (FT, £, p18).

Matt Brittin, Google’s UK CEO, has defended the company’s tax arrangements in a hearing before the House of Commons’ Public Accounts Committee (BBC News).

First-time buyers who purchase a house this year will have already spent £52,900 on rent, according to research carried out by the Association of Letting Agents (Arla) and the Centre for Economics and Business Research (BBC News). The figure rises to £68,300 for those buying a home in London.

Businesses are preparing themselves for cuts to prized tax breaks for corporate debt, in a Budget crackdown that would raise hundreds of millions of pounds a year (FT, £, p3).

Companies that fail to tackle pay differences between male and female employees will be highlighted in new league tables under plans announced by Women and Equalities Minister Nicky Morgan (BBC News).

A report by Payments UK has found that by the end of 2015, 3.2m UK consumers had signed up for Paym or mobile banking services, while 41 per cent of UK debit cards had a contactless function, compared with 26 per cent in Canada, and 23 per cent in the US (City AM, p10).

The Bank of England has said that it will close its personal banking service after an internal review concluded that servicing its 4,000 customers, mainly retired former Bank officials, made little economic sense (Sky News).

What the commentators say

Writing in the Telegraph (B2), Allister Heath criticises central banks for distorting the free market and the price of risk in the system.

Gillian Tett writes about the prospect of negative interest rates in the US and around the globe (FT, £, p13).

Jeremy Warner argues that central bank stimulus seems to have reached the limits of its usefulness, with the introduction of negative interest rates threatening only further bouts of financial instability (Telegraph, p25).

Max Rangeley, Editor at The Cobden Centre, says blockchain technology could remove the need for central bankers entirely and “replace it with something based on liberty and free enterprise rather than the failed philosophy of economic central planning and price fixing” (City AM, p18).

Writing in the Telegraph (B1), Ambrose Evans-Pritchard writes about how the surging yen could spell the end ‘Abenomics’ and highlights how it represents a “disaster for Bank of Japan Governor Haruhiko Kuroda who pushed through negative rates against strong protests by half the bank’s voting members.”

Jan Gaspers and Mikko Huotari from the Mercator Institute for China Studies write that granting Market Economy Status to China now would lead to significant economic and political risks (EU Observer).

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