16th November 2015

BBA Brief – 16 November 2016

Tyrie warns Carney over bond market liquidity risk

Andrew Tyrie, Chairman of the Treasury Select Committee, will today write to Bank of England Governor, Mark Carney, to set out his concerns that a decline in bond market liquidity will pose a new threat to financial stability (City AM, p5). In particular, Mr Tyrie focuses on risk to the gilt-edged bond market.

In an open letter, Mr Tyrie will ask Dr Carney for an explanation of how the Bank of England intends to avoid “a vicious cycle of declining liquidity and financial distress among bond traders”. He will also set out some of the perceived risks including onerous regulation of the banking sector, which has “reduced banks’ capacity to act as market-makers” and “absorb fluctuations in supply and demand” (Telegraph B3).

The UK is open for business, but will it win the global race?

Writing in the Telegraph (B2) today Anthony Browne, CEO of the BBA, explains that the UK is at a tipping point in its future as a global banking sector and that the Government needs to act to establish a “clear vision for the role of international banking within the UK economy that is underpinned by joined-up policymaking…to ensure that industry, regulators and government can work together to ensure that damaging uncertainty and unintended consequences are avoided”.

His comments come after the BBA published its ”Winning the Global Race” report on Friday, outlining key threats to the UK as a centre for wholesale banking. The report found a 12 per cent reduction in assets in the UK banking sector since 2011, compared with rises in the US (+12%), Hong Kong (+34%) and Singapore (+24%). Mr Browne identifies the threats facing the sector, such as “bank-specific taxation, extraterritorial regulation and uncertainty over future access to the European single market”, and argues that failure to address these now “will mean that the red carpet will be increasingly threadbare in the years to come”.

Economic concern affects market sentiment in Northern Europe

There is widespread coverage of the Deloitte report published today which analysed the views of 1300 Chief Financial Officers (CFOs) across 15 European Countries. The report finds that confidence and risk appetite in European businesses has fallen over the past six months, reflecting concerns over global economic, market and currency weaknesses (FT, £, p6). Sentiment has fallen most in the northern European countries, including the UK, Germany, France and the Netherlands, but risen in the Southern countries.

Ian Stewart, Chief Economist at Deloitte, said: “concerns about global growth have had a marked effect on sentiment in northern Europe, but we are seeing a rebalancing of prospects within Europe from north to south”. Almost 30% of UK Chief Financial Officers feel less optimistic about the financial prospects of their business than three months ago, but remain among the most positive in terms of risk appetite, hiring intentions and revenue growth when compared to European colleagues (City AM, p8).

Today’s diary

House of Commons returns from Autumn Recess

Council Working Group on Benchmarks

European Council President begins bilateral consultations on UK negotiations on EU reform

Prime Minister David Cameron speaks at Lord Mayor’s annual banquet

Deloitte: European CFO survey

Latest from the BBA

Adam Cull, Senior Director, Financial Policy and Operations, blogs about the Bank of England’s supervisory statement on contractual stays in financial contracts governed by third country law.

BBA Policy Advisor Ariane Poulain discusses why it is time that we break one of Britain’s last taboos – talking about money.

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.

Stat of the Day

29% – the proportion of UK CFOs that feel less optimistic about the financial prospects of their business than three months ago, according to a report by Deloitte.

In brief

Jeroen Dijsselbloem, Chair of the Eurogroup of Eurozone Finance Ministers, has said “agreement has been reached on many issues” between the Greek Government and bailout monitors (City AM, p6, print only).

Economic crime investigations have fallen 28 per cent over the past four years, which is being attributed to cuts in police budgets (FT, £, p7).

China, the tenth-biggest global provider of income for investors, is set to post the first decline in dividends on record (Times, £, p49).

There has been a rise in the number of women at the top of the UK’s largest public companies, although the overall number of female heads remains low (FT, £, p23).

US and German bond yields have reached the highest level since the launch of the euro, further indicating the likelihood that interest rates will move in opposite directions (FT, £, p19).

The number of tech start-ups based near London’s ‘Silicon Roundabout’ has dropped nearly a third due to rising rental prices (City AM, p9).

The head of the Swiss Bankers Association, Patrick Odier, has said that the UK campaign to reform the European Union could help Switzerland overcome its own clashes with Brussels, which are hampering its banks’ access to European Markets (FT, £, p20).

Attitudes towards investing in emerging markets have increased but remain below the level of this time last year, according to Lloyds Bank’s investor sentiment index (City AM, p15).

Fears over financial stability in China have been eased as capital flowed into China last month for the first time since the currency devaluation in August shook investor confidence (FT, £, p8).

The report into the failure of HBOS, to be published on Thursday, will not contain financial sanctions due to a six-year time limit on information received by the regulator (Guardian p26).

Accountants have warned that moves to clamp down on tax breaks for non-doms by Chancellor George Osborne might potentially bring more damage to the UK economy than any anticipated exchequer gain (FT, £, p6).

What the commentators say

The new Lord Mayor of London, Jeffrey Mountevans, sets out his priorities for his year-long term, including his motto: “innovate here, succeed everywhere” (City AM, p24).

Wolfgang Münchau writes that Italy’s recovery from recession is not just a technical discussion about economics but is fundamental to its future in the euro and Europe (FT, £, p13).

If you have five minutes…

The FT has a special report on ‘Turkey and the World’ ahead of the G20 meeting in Antalya this week (FT, £, special report).

Please register or login to add this to your interests.