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.
Mortgage borrowing rises ahead of tax changes
Gross mortgage borrowing by high street banks climbed to £13.6bn in January, the highest level since mid-2008 (BBC News). The number of mortgages approved for house purchases was 27 per cent higher than a year earlier. The Guardian (p23) reports that average value of loans approved for house purchase rose to £178,900, while the average remortgage grew to £181,800. Richard Woolhouse, Chief Economist at the BBA, said: “The start of the year has seen a significant rise in mortgage borrowing. It seems that this has been driven, in part, by borrowers looking to get ahead of the increases in stamp duty for buy-to-let and second-home buyers scheduled to come into effect in April.” The High Street Banking data is available here.
Global banks could face higher levy bill than expected
The Government’s plans to modify the bank levy could lead to global banks being hit with a higher than expected tax bill (FT, £, p6). The re-scoping of the bank levy consultation, published in December, states that “liabilities of a UK banking entity that relate to the funding of their overseas subsidiaries” would “remain within the scope of the levy”. The newspaper reports that this could lead to global banking groups paying hundreds of millions of pounds more than was initially suggested. The Chancellor announced last year that the levy would be gradually reduced and no longer apply to banks’ global businesses from 2021. BBA Chief Executive Anthony Browne said: “We welcome the objective of the Chancellor to protect UK competitiveness and his commitment to make sure the levy no longer applies to worldwide balance sheets. There are some key issues that need addressing as part of the consultation process to ensure the levy is genuinely and solely focused on UK activities.”
EBA stress tests ignore negative interest rate risk
The European Banking Authority has announced that its annual stress test programme – which covers leading UK banks – will assess banks’ resilience against a global economic slowdown, falling commodity and property prices and further regulatory fines. (Guardian, p25). The EBA has not included negative interest rates in its scenario. The Telegraph (B4) criticises the “watered-down stress tests” for being impossible to fail and only examining 51 banks, compared to 130 banks in 2014.Read more
Bank of England rejects prospect of negative interest rates
Mark Carney has said that the Bank of England has “no intention and no interest” in introducing negative interest rates and would use the full range of the Bank’s other powers to deal with a slowdown in the economy (Guardian, p19). Speaking to MPs on the Treasury Select Committee, Dr Carney highlighted the impact that negative rates could have on the financial services sector. He said: “We take very seriously the potentially counter-productive impact on the building society sector and the financial sector more broadly.” The Times (£, p39) notes that Gertjan Vlieghe, who also sits on the Monetary Policy Committee, highlighted potential “downside surprises” that could lead to a further cut in interest rates.
Claims management companies profit from PPI claims
Almost a quarter of the £22.2bn paid out for payment protection insurance (PPI) compensation has been taken by claims management companies, according to a new report (BBC News). The National Audit Office found that four fifths of PPI complaints to the Financial Ombudsman Service were made through companies that had taken between £3.8bn and £5bn from April 2011 to November 2015. The Daily Mail (p22) quotes Martin Lewis, founder of MoneySavingExpert.com, saying: “Certainly the claims management industry has made billions out of PPI. That is far too much when there is a lot of free information out there for customers.”Read more
Business leaders sign letter supporting EU membership
A letter calling on the UK to remain in the European Union has been signed by 200 business leaders, including Chairmen and Chief Executives of 36 FTSE 100 companies (Times, £, p1). The letter welcomes the renegotiation deal secured by the Prime Minister in Brussels last week. It concludes: “Business needs unrestricted access to the European market of 500 million people in order to continue to grow, invest and create jobs” (BBC News). Leave campaigners have highlighted that two-thirds of FTSE 100 firms, including some major banks and supermarkets, did not back the letter.
PPI tops complaints to ombudsman
Figures from the Financial Ombudsman Service show it received 164,347 new complaint cases against banks in the second half of the year (Independent, p51). PPI complaints accounted for over 92,000, or 56 per cent, of the total. Complaints about financial products other than PPI fell in the last six months of 2015, with fewer concerns raised reported with packaged bank accounts, mortgages and pensions (Telegraph, B5).
US banking groups warn against proposed capital buffer rules
The leading US banking lobby groups have criticised proposals from the Federal Reserve on total loss absorbing capacity, warning that the “excessive” requirements could restrict the flow of credit (FT, £, p16). Under the Fed’s proposals, banks must operate with a minimum equity and debt ratio equal to 18 per cent of risk-weighted assets. The lobby groups called for this ratio to be reduced to 14 per cent. Greg Baer, President of lobby group The Clearing House, said reforms since the crisis meant that “the US has an extraordinarily resilient and resolvable set of banks.”Read more
Boris Johnson backs ‘Brexit’
Most newspapers lead with Boris Johnson’s announcement that he will back the campaign to take Britain out of the European Union. The Times (£, p1) reports that the Mayor of London declared that he “would like a new relationship based more on trade, and co-operation” which could be negotiated after exit. The Daily Mail (p1) reports that Michael Gove, Iain Duncan Smith and Zac Goldsmith were among the other high profile Conservative figures to back a ‘Brexit’ over the weekend. It is now expected that around 150 Conservative MPs will campaign against the renegotiation deal secured by the Prime Minister on Friday evening (Telegraph, p1).
Low interest rates lead savers to keep cash in current accounts
The Daily Mail (p12) reports that low interest rates are leading to savers shunning products such as Isas in favour of keeping their cash in current accounts, according to a survey by Nationwide Building Society. Nearly half of adults now use their current account to boost their savings, compared with just a third who use a cash Isa. Around a quarter of respondents said they were putting money away for holidays. The Daily Express (p44, paper only) reports that the introduction of the new personal savings allowance in April will mean consumers do not have to pay tax on interest up to £1,000.Read more
Crucial Brussels summit draws to a close
There is widespread coverage of the European Council summit as it comes to a close today. City AM (p1) reports that Downing Street warned yesterday that EU leaders had made “no real progress” agreeing the UK’s new settlement as talks continued overnight. The Prime Minister said: “If we can get a good deal, I’ll take that deal. But I won’t take a deal that doesn’t meet what we need.” The Times (£, p1) states that Belgium and France are pushing for the inclusion of a ‘last chance’ clause, which would effectively mean the UK could not renegotiate better terms in future. The Telegraph (p1) reports that more than 80 FTSE 100 businesses will come out in favour of staying in the EU ahead of the referendum.
Mortgage lending climbs to eight year January high
Mortgage lending had its strongest start to the year for eight years, according to figures released by the Council of Mortgage Lenders yesterday (City AM, p7). BBC News reports that homebuyers borrowed £17.9bn in January as buy-to-let landlords rushed to pre-empt forthcoming tax changes. That represents a 21 per cent rise on the same month last year. CML Economist Mohammad Jamei said: “We still only see limited upside potential going forwards, as the number of properties for sale on the market remains low and affordability pressures weigh on activity.”Read more
PPI deadline could face judicial review
A claims management company is threatening to launch a judicial review of the Financial Conduct Authority’s proposed deadline for payment protection insurance (PPI) claims (Times, £, p37). We Fight Any Claim has also criticised a proposal that would enable firms that sold PPI to keep half of their undisclosed commission on sales. A legal opinion commissioned by the company claimed that the FCA’s actions were “probably unlawful” and represented a failure of its statutory objective of consumer protection. Andrew Tyrie MP, Chairman of the Treasury Select Committee, said: “The FCA should ensure that the programme of work for PPI complaints does not bring about detriment, or unreasonable delay, for the consumer.” The FCA’s consultation closes next week.
Prime Minister heads to Brussels for key EU summit
David Cameron is heading to Brussels today for a crucial European Union summit that will focus on Britain’s ‘new settlement’ (Guardian, p1). Doubts are being raised over whether the Prime Minister will be able to deliver his proposals. The Telegraph (p1) reports that Mr Cameron is expected to formally announce the referendum tomorrow once he returns to the UK. The Mayor of London, Boris Johnson, has said more needs to be done to obtain his backing for the campaign to keep Britain in the EU.
Slowing wage growth expected to delay interest rate rise
Unemployment dropped by 60,000 between October and December to 1.69m, according to the Office for National Statistics (BBC News). More than 31.4 million people are now in work, the highest figure since records began in 1971. The Guardian (p25) reports that wage growth dropped to 1.9% last year, potentially pushing back the first UK interest rate rise since 2007 even further. The Chancellor, George Osborne, said: “In the face of significant turbulence in the global economy, it is encouraging that more people than ever have the security of a job and a rising pay packet.”Read more
Banks playing increasing role in peer-to-peer lending
Banks now account for a quarter of the lending on peer-to-peer websites, according to a new report the University of Cambridge and innovation charity Nesta (FT, £, p2). It finds that the alternative finance market grew 84 per cent last year, to £3.2bn. Stian Westlake from Nesta said: “Banks can learn about both cost-effective loan origination and data-driven due diligence from the P2P platforms. I think most of the banks are sniffing around for acquisitions.” Lord Turner, former Chairman of the Financial Services Authority, recently warned that insufficient credit checks by peer-to-peer sites could lead to big losses over the next decade.
New Federal Reserve policymaker warns banks are still too big to fail
The US Federal Reserve’s newest member, Neel Kashkari, has called for “bold, transformational” rules that go further than the Dodd-Frank reforms, including possibly breaking up the nation’s largest banks (Reuters). He said Congress should consider compelling banks to hold so much capital that they “virtually can’t fail,” effectively treating them like public utilities. The Wall Street Journal (£, online only) highlights how Mr Kashkari’s comments contrast with those of the Fed’s Chair Janet Yellen, who told the Senate last week that the US now has “a much more resilient and stronger, better-capitalized, more liquid banking system.”
Housing market growth slows
House prices in the UK rose by 6.7 per cent in 2015, down from 9.8 per cent the previous year, according to the Office for National Statistics (BBC News). The average price of a house at the end of December was £288,000. Separately, new data from the Council of Mortgage Lenders showed that lending to buy-to-let investors dropped by three per cent in December (City AM, p21). The newspaper notes that buy-to-let activity is expected to slow further this year due to policy changes, including a three per cent stamp duty surcharge and new tax on mortgage interest.Read more
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.”Read more
Sir John Vickers criticises Bank of England capital proposals
Sir John Vickers, who led the Independent Commission on Banking (ICB) has warned that the Bank of England’s reforms are not robust enough to prevent a future crisis (FT, £, p4). He expressed concern that the ICB’s proposals had not been implemented in full, in particular on capital requirements for the banking sector. BBC News quotes Sir John saying: “If banks run out of capital, all sorts of havoc could ensue. We want to be in a position where there’s enough of a buffer to take any losses that might occur.” He has also expressed a preference for high-quality equity capital rather than untested alternatives such as contingent convertible bonds. Sir John was interviewed on Radio 4’s Today Programme at 8.10am.
HSBC decides to remain headquartered in London
There is widespread coverage of HSBC’s announcement last night that it has decided to remain domiciled in the UK. The Times (£, p37) reports that the decision was reached unanimously after a board meeting yesterday. Welcoming the announcement, the Treasury said: “They’ve [HSBC] looked carefully and dispassionately at the facts and confirmed that the UK is the best place to base a global business.” BBC News notes that HSBC also declared that it will only review its domicile again in the event of a “material change in circumstances.” HSBC Chairman Douglas Flint was interviewed on Radio 4’s Today Programme at 7.10am.Read more
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).Read more