The BBA is now integrated into UK Finance. Please go to www.ukfinance.org.uk for new content and updates from UK Finance.
Material published by BBA prior to 1st July 2017 is still available on this website.
From 1 July 2017, the finance and banking industry operating in the UK will be represented by a new trade association, UK Finance. It will represent around 300 firms in the UK providing credit, banking, markets and payment-related services. The new organisation will take on most of the activities previously carried out by the Asset Based Finance Association, the British Bankers’ Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association.x
BBA brief is a round up of each morning’s banking policy news prepared by the BBA’s media team. It is a selection of the articles in the papers and broadcast stories. The content does not reflect the views of the BBA.
Bundesbank President warns Brexit could hit City
The Guardian (p1) reports that Bundesbank President Jens Weidmann has warned that London’s position as a financial centre would be damaged if the UK left the single market. In an interview, Mr Weidmann underlined that “passporting rights are tied to the single market and would automatically cease to apply if Great Britain is no longer at least part of the European Economic Area.” He also added that the withdrawal of passporting rights could lead to banks relocating to Frankfurt. Separately, the FT (£, p17) notes that Nobuyuki Hirano, Chief Executive of Mitsubishi UFJ Financial Group, Japan’s biggest bank, has called on the UK to engineer a ‘soft Brexit’. According to the FT (£, p2), Chancellor Philip Hammond is pushing for maximum access to the single market, in contrast to other ministers who want a “clean break” from the EU.
New fraud figures published
The Times (£, p1) reports that one in ten adults has replaced a credit or debit card after a cyberattack, identity theft or card cloning, according to research by Populus. James Daley, of the consumer group Fairer Finance, said: “These figures show that cyberfraud has become a pandemic and the lack of investment in policing the problem is increasingly difficult to justify.” The study finds that consumers are so concerned about online fraud that they are starting to avoid making online payments. Katy Worobec, of Financial Fraud Action UK, added: “Banks use robust security systems which last year stopped £6 in every £10 of attempted card fraud. Anyone who is the victim of card fraud is legally protected and will get their money back.”
Concerns raised over Chinese banking sector
There is a growing risk of a Chinese banking crisis, according to the Bank for International Settlements (BBC News). The latest quarterly review from BIS found that China’s credit-to-GDP gap hit 30.1 in the first quarter of 2016, over three times the level it considers to be a sign of potential danger. Separately, the International Monetary Fund estimates that loans worth $1.3 trillion in China are at risk of default.Read more
Bank of England keeps interest rates on hold
The FT (£, p1) reports that the Bank of England’s Monetary Policy Committee yesterday voted unanimously to keep its monetary policy on hold, with interest rates remaining at 0.25 per cent. The MPC stated, however, that rates could be cut again in the coming months even though the economic impact of the Brexit vote has been less significant than previously expected (BBC News). Fabrice Montagné, an Economist at Barclays, said that while he still expected a further rate cut this year, “the likelihood of an alternative scenario where the bank keeps powder dry has increased”.
Bonuses climb above pre-crisis peak
Figures published by the Office for National Statistics show that UK employees received £44.3 billion in bonuses in the last financial year, more in cash terms than the pre-financial crisis peak (FT, £, p2). However, bonuses remain 12 per cent lower than 2007-08 after adjusting for inflation. Matthew Whittaker, Chief Economist at the Resolution Foundation think-tank, said: “There is little appetite for a return to the pre-crisis bonus culture that appeared to characterise the excesses of the period, so we should not expect too many tears to be shed over the fact that total bonus payments remain well down on their peak in real terms.” Staff in finance and insurance now receive 31 per cent of the overall bonus pool, down from a peak of 47 per cent in 2006.Read more
Banks told to embrace digitisation
The FT (£, p16) reports that McKinsey has found that digitisation of investment banks could increase the sector’s profitability by 20 to 30 per cent over three years. The consulting group stated that increasing low-cost electronic trading and outsourcing more activities to digital shared service platforms could cut costs across the sector, while cloud technology and machine learning could boost revenue streams. Matthieu Lemerle, Head of McKinsey’s corporate and investment banking practice, said: “The toolkit is getting richer and the willingness of banks to embrace things they never would have done in the past is really happening.” The Telegraph (B5) notes that, major investment banks earn returns on equity of seven per cent on average, which is below their cost of capital despite several years of cost cutting.
Government urged to avoid rushing Brexit
The Telegraph (B3) reports that two senior bank leaders have called on the Government to formulate a clear Brexit plan and provide the City with several years to adjust to any changes. Speaking before a House of Lords committee, Bank of America Merrill Lynch’s European President Alex Wilmot-Sitwell said: “That process is very dangerous, it is fraught with risk because the materials that are being moved are risky materials, and you don’t move nuclear waste in a race – you do it in a very carefully coordinated and managed process.” HSBC’s Chairman Douglas Flint added: “Without knowing where you’re trying to go to and what happens from the point of exit to that point, how do you make a decision? Given the time it would take to establish a different model and set up branches or subsidiaries elsewhere, these things need to be known sooner rather than later.”
Mortgage lending falls following Brexit vote
The Times (£, p42) reports that the number of mortgages advanced for house purchases fell in July, the first full month after the UK voted to leave the European Union. Figures published by the Council of Mortgage Lenders showed that first-time buyers and homeowners took out 58,100 loans, worth a total of £10.6 billion in July. The number of loans dropped by 14 per cent compared with June, while the value was 13 per cent lower. Paul Smee, Director-General of the CML, said: “It is hard to determine whether these figures reflect a first uncertain reaction to the referendum vote or are a sign of a market that was already cooling.”Read more
Cabinet Minister outlines risk of leaving EU without trade deal
The Guardian (p5) reports that David Davis has acknowledged that the UK could have to revert to World Trade Organisation tariffs if it leaves the European Union without a trade deal. The Secretary of State for Exiting the European Union also highlighted one “obvious negotiating risk” is that the European Commission could win a power struggle with leaders of individual member states, who are likely to be more accommodating. Meanwhile, Reuters reports that Guy Verhofstadt, the new Brexit negotiator for the European Parliament, has warned “if the UK wants to remain a part of the single market, it will also have to accept the free movement of our citizens”.
Call for inquiry into Bank’s ‘tax on savers’
The Telegraph (p4) reports that the Bank of England is being pressed to launch an inquiry into the impact of low interest rates and quantitative easing on savers. Former Pensions Minister Baroness Altman claims such policies hit those on modest and middle incomes like an extra tax, as well as hitting their pension funds. Labour MP Chris Leslie has backed calls for an inquiry into the impact of the Bank’s monetary policy. Separately, the Times (£, p35) reports that the UK bond fund M&G Investments has suggested that low interest rates mean investors would be better off sticking their money under the bed than investing in bonds.
European banks meeting capital requirements
The FT (£, online only) reports that the European Banking Authority has found that the continent’s banks have the smallest shortfall on record under Common Equity Tier 1 rules. As of the end of December 2015, the EBA said 227 lenders across the European Union had a shortfall of €0.4 billion. The largest banks across the EU reported an average CET1 ratio of 12.4 per cent, while the second-tier of banks reported an average of 13.6 per cent. Both were well above the international minimum level set by the Basel Committee on Banking Supervision.Read more
New ‘plastic’ £5 notes issued
The Bank of England has begun issuing the new plastic £5 note in England and Wales today (BBC News). ATMs in London, Manchester, Birmingham, Leeds, Hull and Cardiff will be among the first to stock them. The polymer notes are expected to last an average of five years – compared to the current note’s two years. Victoria Cleland, the Bank’s Chief Cashier, said: “Although there are lots of alternative ways to pay out there we are still seeing strong demand for cash and so that’s why we think it’s really important to make sure it’s fit for the modern age” (Guardian, p4). The old fiver will continue to be valid until 5 May 2017, by which time the Bank expects most of them will have been removed from circulation.
Prospects of Fed rate rise recede
The FT (£, p1) reports that the prospects of a Federal Reserve interest rate rise this month receded further yesterday after a senior policymaker argued against rushing into an increase. Lael Brainard, a Fed Governor and permanent member of the Federal Open Market Committee, said: “To the extent that the effect on inflation of further gradual tightening in labour market conditions is likely to be moderate and gradual, the case to tighten policy preemptively is less compelling.” The Fed will next decide whether to raise rates at a meeting on September 21.
ECB allows banks to set NPL targets
Eurozone banks will get to set their own targets for cutting the €900 billion of bad loans left over from the financial crisis (Reuters). New guidance by the European Central Bank will require banks to set their own targets for the levels on non-performing loans, with only “significant” deviations triggering regulatory action. Sharon Donnery, the Irish Deputy Governor who chaired the ECB’s working group on bad loans, said: “If there were significant gaps, then obviously we would be discussing with the bank how they would move close toward compliance with the guidance, particularly the time frame over which that was going to happen.”Read more
Government to launch crackdown on white collar crime
The Times (£, p1) reports that the Government is set to announce a crackdown on white collar crime. Company boards could face prosecution for failing to prevent their staff from committing money-laundering, false accounting and fraud as part of a new Criminal Finance Bill. Jeremy Wright, QC, the Attorney-General, said last week at a symposium in Cambridge on economic crime that ministers would consult on the plans with a view to introducing legislation.
Central bankers endorse Basel capital rules
The Group of Central Bank Governors and Heads of Supervision has “endorsed the broad direction” of the Basel Committee’s reforms to capital rules (Reuters). The central bankers also urged the Basel Committee to avoid any further large increases in requirements. A statement issued following a meeting on Sunday said: “The GHOS discussed the Basel Committee’s ongoing cumulative impact assessment and reaffirmed that, as a result of this assessment, the committee should focus on not significantly increasing overall capital requirements.”
County Court Judgments criticised
An investigation in the Daily Mail (p1, p6) looks at a number of county court judgements being brought by banks, utilities and parking firms which can, in extreme cases, lead to bankruptcy for people unaware that the cases are proceeding. The newspaper finds that the number of CCJs has risen by more than a third in just three years – almost 900,000 were issued last year, and 85 per cent were uncontested. Courts Minister Sir Oliver Heald said: “These are serious claims which will be looked at urgently. Our legal system is world-leading and we are determined to ensure that it is not open to abuse.”Read more
Chancellor provides reassurance on potential free movement restrictions
The Chancellor has stated that any possible restrictions on the freedom of movement following the Brexit negotiations will not prevent financial institutions from hiring “highly skilled” individuals (Telegraph, p4). Mr Hammond told a House of Lords committee: “We cannot accept uncontrolled free movement of people. That’s the political outcome of the referendum […] We will use it [control over free movement] in a sensible way that will facilitate the movement of highly skilled people between financial institutions and businesses to support investment in the UK economy.” He also added that any attempt to take euro-denominated clearing away from London would harm Europe, with business shifting to New York (FT, £, p1).
Dombrovskis warns over passporting rights
Valdis Dombrovskis, European Union Commissioner for financial services, has said that the City of London will lose the right to grant access to the single market if free movement of people is rejected after Brexit (Times, £, p44). Mr Dombrovskis said: “If Great Britain no longer wants to permit freedom of movement for people, then we will have to limit capital movements in return. British financial institutions will then no longer have free access to the single market.” Dombrovskis’ comments came after BBA CEO Anthony Browne said Britain should negotiate transitional arrangements to avoid “cliff edge” disruption to financial markets (Evening Standard, p45).
European regulator to clampdown on capital rules
The European Supervisory Authorities – a committee of groups that oversees the EU’s financial regulators – has said it is planning to tighten oversight on capital rules after the UK’s vote to leave the bloc (FT, £, online only). Gabriel Bernadino, Chairman of the joint committee, said: “We are considering the possibilities for further enhancing monitoring of financial industries, reinforcing adequate capital or risk buffers as well as ensuring adequate resolution arrangements for affected sectors.” The ESA’s report also said that non-performing loans threatened the bloc’s financial stability.Read more
EU Financial Affairs Sub-Committee takes evidence on Brexit
BBA Chief Executive Anthony Browne gave evidence to the House of Lords EU Financial Affairs Sub-Committee yesterday (BBC News). He called for “some form of transitional arrangements” for the financial services industry to avoid “cliff edge” effects as the UK prepares to leave the European Union. Mr Browne also said that UK-based banks have not decided whether to move operations overseas after Brexit, stating “there is a ‘wait and see’ at the moment”. Meanwhile, the FT (£, p2) notes that a number of senior banking figures met with Chancellor Philip Hammond yesterday. After the meeting, Mr Hammond said: “I understand the scale of the potential impact leaving the EU could have for parts of the financial services industry. That is why I am determined to listen to what the industry has to say on key issues, like access to the single market.” Meanwhile, Sir Charlie Bean, a former Deputy Governor of the Bank of England, has said London is likely to lose its dominance in the clearing of euro-denominated financial contracts following a Brexit (Times, £, p46).
Bank of England questioned by Treasury Select Committee
Bank of England Governor Mark Carney has stated that the economy has proven resilient following the EU referendum “because the bank took timely, comprehensive and concrete action and that action has had an impact” (FT, £, p1). Mr Carney warned, however, that the UK faces a significant slowdown and that the central bank was prepared to cut interest rates further. He was also questioned by members of the Treasury Select Committee about whether banks were passing on the August interest rate cut to borrowers as quickly as they reduced rates for savers (Daily Mail, p70). Mr Carney added: ”We would expect the full amount to be passed on in the next few months.”
Prime Minister highlights Brexit trade opportunities
Theresa May said the UK could become “the global leader in free trade” as she faced calls to clarify the government’s post-Brexit vision (BBC News). The Prime Minister also told the Commons that “we will not reveal our hand prematurely and we will not provide a running commentary on every twist and turn of the negotiation.” It comes as Mrs May meets European Council President Donald Tusk for the first time (Sky News). Mr Tusk told the Prime Minister that “the ball is now in your court” and that negotiations would only begin once Article 50 had been triggered.Read more
Chancellor to meet with bank leaders
City AM (p2) reports that members of the newly-created trade body European Financial Services Chairman’s Advisory Committee will meet with Chancellor Philip Hammond today to discuss Brexit and his upcoming Autumn Statement. Mr Hammond said: “We want to ensure the continued investment that creates jobs and supports wage growth throughout this period of uncertainty ahead of the UK formally leaving the European Union.” Meanwhile, the Prime Minister’s spokeswoman has said that comments from Brexit Secretary David Davis suggesting it was “very improbable” the UK would remain in the single market were not Government policy (FT, £, p3). Separately, Australia and the UK are to hold “preliminary discussions” about a post-Brexit trade deal (BBC News).
Treasury Select Committee members criticise overdraft fees
Two members of the Treasury Select Committee have criticised the Competition and Markets Authority’s proposals on restricting overdraft fees for not going far enough (Reuters). Andrew Tyrie, the committee’s chairman, said: “The CMA’s proposed remedies, which include a self-regulated maximum monthly charge, don’t appear robust enough to deal with this serious problem” (Telegraph, B3). Labour MP Rachel Reeves added: “It [the CMA] must step up to the challenge and take necessary action, for example by imposing a monthly maximum charge on overdrafts, to ensure that those who are most financially vulnerable are protected.” The committee also published a series of letters from high street banks outlining their overdraft fees.
Banks ‘becoming more like utilities’
A feature in the FT (£, p9) explores whether banks are becoming more like utilities amid increased regulation and a low growth environment. The article examines how return on equity had dropped since the financial crisis, with increasing competition and regulatory requirements narrowing margins in payments and other business lines. Sir Philip Hampton, Chairman of GlaxoSmithKline and former Chairman of RBS, said: ““Banks look increasingly like competitive utilities […] There are ever-higher levels of regulation and relatively low utility-like returns.” Separately, researchers from JP Morgan have claimed European banks have more in common with low-returning Japanese institutions rather than their Wall Street rivals (FT, £, p15).Read more
Investment banks face falling revenues
Revenues at the world’s largest investment banks dropped by 15 per cent in the first half of 2016 – the biggest drop since the financial crisis, according to analytics firm Coalition (FT, £, p15). Banks’ revenues from trading stocks and bonds, and advising companies on mergers and capital raising, amounted to $79 billion in the first half, down from $93.3 billion last year. George Kuznetsov, Head of Research and Analytics at Coalition, said: “Investment banks are realising there is no top-line relief, capital allocation from [parent companies] probably won’t change much, and regulations won’t change much. So improvement in returns becomes dependent on optimising the cost base or grabbing market share.”
Government plans to consult on Brexit plans
Sky News reports that the Chancellor is to host a meeting on Wednesday with the heads of major banks, insurance companies and asset managers to discuss the UK’s exit from the EU. Among the issues expected to be discussed is how best to protect the financial services sector’s access to Europe’s “passporting” framework. Meanwhile, City AM (p1) reports that Brexit Secretary David Davis will hold a series of roundtables to consult business leaders from October. In a statement in Parliament, Mr Davis said: “We are going to listen and talk to as many organisations, companies and institutions as possible – from the large PLCs to small business, from the devolved administrations through to councils, local government associations and the major metropolitan bodies.” MPs from Labour, the Liberal Democrats and the SNP criticised the statement for lacking detail.
Slight increase in complaints
The Financial Ombudsman received 169,132 complaints in the first half of 2016, up three per cent on the previous six months (BBC News). Payment protection insurance accounted for 54 percent of new complaints with 91,381 new cases, down slightly from the second half of 2015 (Reuters). Chief Financial Ombudsman Caroline Wayman said: “Although it is a few years now since PPI complaints peaked, we have been receiving over 3,000 a week for six years running – despite wider expectations that numbers will fall. We are continuing to deal with the issues and uncertainties around PPI which remain a significant challenge for everyone involved.”Read more