16th February 2016

BBA Brief – 16 February 2016

Bank of England defends capital requirement proposals

The Bank of England has rejected criticism from Sir John Vickers that it has watered down recommended minimum capital levels for Britain’s biggest banks (Times, £, p43). In a statement issued last night, the Bank insisted that it had gone beyond the recommendations of Sir John’s Independent Commission on Banking (ICB). It added: “On a comparable basis, globally systemic banks in the UK will be required to have ten times more capital than before the crisis.” The FT (£, online only) notes that the Bank argues the biggest UK lenders will need to hold total capital of 22-23 per cent of risk-weighted assets, including total loss-absorbing capacity. That compares with the ICB’s recommendation for total capital to be 17-20 per cent.

Cameron tries to win support for ‘new settlement’ with EU

David Cameron is due to visit Brussels today to meet with European Commission President Jean-Claude Juncker and senior MEPs to build support for his EU reform deal (BBC News). The negotiations are at a “critical moment”, according to EU Council president Donald Tusk.  The FT (£, p2) reports that the Prime Minister will also try to assuage concerns in France about proposed ‘safeguards’ for the City of London against eurozone financial rules. Senior French policymakers have criticised the draft of Britain’s ‘new settlement’ with the EU for its vague language, which they claim could effectively give the UK a veto over new regulation and further eurozone integration.

ECB lays ground for further stimulus measures

ECB President Mario Draghi has said the central bank is “ready to do its part” to support the eurozone, heightening expectations that it could unveil further stimulus measures next month (FT, £, p6). Mr Draghi also sought to pour cold water on fears over the European banking system, insisting reforms since the financial crisis had boosted its resilience. BBC News reports that Mr Draghi also discussed proposals to abolish the €500 note, telling MEPs that: “The €500 note is being viewed increasingly as an instrument for illegal activities. It has nothing to do with reducing cash.”

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Today’s diary

ONS: UK CPI Jan 2016

ONS: House Price Index Dec. 2015

ONS: PPI 2015

CML: monthly lending trends

IFS: launch of report: effects of taxes and charges on savings incentives in the UK

LSE: John McDonnell lecture on Labour’s economic policy

Stat of the day

£1.5bn – the value of reported fraud in the UK in 2015 (Source: BDO).

In brief

Bankers appointed to senior positions will have to provide references going back for a minimum of five years to prevent them covering up past misconduct, the Bank of England has announced (Times, £, p48, paper only).

More than 70,000 people have signed up to buy discounted homes and flats under the Government’s new starter home scheme even though it has yet to be launched (FT, £, p2).

Andrew Mitchell, the former Secretary of State for International Development, has called for a parliamentary inquiry into the effect that counter-terror legislation is having on the bank accounts of Islamic charities operating in conflict zones (Third Sector).

Stuart Gulliver, HSBC’s Chief Executive, has stated that the bank could shift 1,000 investment banking jobs from London to Paris if the UK votes to leave the EU (Guardian, p19).

The Ministry of Justice is launching a clampdown down on the large PPI fees from claims management companies (Telegraph, B3). A BBA spokesman said. “Unfortunately, some unscrupulous claims management companies have been offering poor value to customers and inundating banks with a huge number of complaints, irrespective of whether they have any chance of succeeding.”

The value of reported fraud in the UK more than doubled in 2015, according to professional services firm BDO (City AM, p6).

The Scottish Government has entered into talks with the banking industry over its plans to deliver £20 million loan backing for farmers suffering from the slow payment of farm support (Scotsman, p39).

What the commentators say

Writing in the Guardian (online only), Paul Mason looks at why central banks are increasingly preparing for the prospect of a cashless society.

Writing in the Times (£, p26), Ed Conway says that diminishing faith in central banks could mean that we are now in a worse position than 2008. He also highlights that the value of contingent convertible bonds on bank balance sheets has soared even as the market for derivatives has shrunk since the crisis.

Gene Frieda, a global strategist for Moore Europe Capital Management, highlights how “a negative feedback loop between bail-in instruments and equity has developed, leading to a loss of confidence” in the European banking sector (FT, £, p30).

Alex Brummer criticises European authorities for failing to tackle bad loans and structural problems at banks across the continent (Daily Mail, p63).

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