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.
Former Bank of England adviser counsels consumers to hold two bank accounts
The papers report on comments by Peter Hahn, a former Bank of England adviser, who has recommended that consumers hold two bank accounts in case their bank is the target of a cyber attack (Telegraph, p2). Mr Hahn said that although many aspects of Britain’s banking system are safer than they were before the crisis, cyber crime posed a greater threat (Times, £, p2). His comments were made on the BBC’s Today Programme before the release of the Bank of England’s Financial Stability Report which warned that cyber risk was one of the five greatest dangers facing banks.
Interest rate divergence increasingly likely
The FT (£, p1, 31) reports on comments made by Janet Yellen, Chair of the US Federal Reserve, yesterday in which she warned of the dangers of waiting to raise interest rates. At the same time, low inflation figures in the EU look set to usher in another round of Quantitative Easing making the prospect of an interest rate policy divergence between the US and the EU increasingly likely (BBC). Yet resistance from some members, notably Germany, could result in less aggressive asset purchase measures than markets have priced in (FT, £, p6). Writing in the FT (£, p13), Chris Giles looks at the Bank of England’s position caught in the middle of the US and the EU and argues that its monetary policy “risks being constrained by a lower and upper band”.Read more
Relief for City as BoE stress show positive signs for the industry
There is widespread coverage of the Bank of England’s (BoE) stress test, which yesterday gave the UK banking sector a clean bill of health. The FT (£, p1) reports that the test – which included a fictional Chinese slowdown – signals an end to the era of ‘bank bashing’ and that the BoE had no desire for new capital buffers, using its powers instead to strengthen banks in good times rather than to tame the credit cycle. Although the Bank will establish a new ‘countercyclical capital buffer’, Governor Mark Carney was clear this would initially be a rebalancing of existing capital requirements rather than a new demand, adding that banks were close to meeting their long-term needs for capital. City AM (p1) quotes Simon Hills, Executive Director of Prudential Capital and Risk at the BBA, as saying: “This demonstrates that banks are in a resilient position and that the long road to more capital is coming to an end”.
Chancellor criticises bonus cap
City AM (p3) reports the Chancellor’s comments to members of the Treasury Select Committee yesterday, where he said the EU cap on bankers’ bonuses has been “entirely counterproductive”. He said “The bonus cap has led to higher base pay within banks, it hasn’t reduced overall remuneration. It just meant if things go wrong it’s more difficult to get the money back”. Mr Osborne pointed out that the EU was not solely to blame as there were many in the UK who had argued for the cap as well. Oliver Parry, Senior Corporate Governance Adviser at the Institute of Directors, said of the cap that it was a “crude instrument, unlikely to have much tangible impact on the culture of ‘rewards for failure’, which was so prevalent during the financial crisis”.
Buy-to-let market could see lending curtailed
The Times (£, online only) reports that landlords could face curbs on lending, after the Bank of England warned it may cool the market. The Bank has expressed concerns that the boom in buy-to-let mortgages could ‘poison’ the wider housing market if economic conditions worsened, as most new loans this year have gone to investors and landlords, rather than owner-occupiers. Lending to landlords rose by 10 per cent in the first nine months of the year and is nearly 40 per cent higher than a year ago. Deputy Governor Sir John Cunliffe said there were concerns about how such borrowers would cope with a rise in interest rates. Separately, the Daily Telegraph (B1) reports warnings from former MPC member Dame Kate Barker that England’s house-builders will not be able to build the homes the country needs, even by 2020. She said “I think the industry would not be capable of going from here to 300,000 [homes a year] in short order”.Read more
Bank of England releases stress test results
The UK’s biggest banks and building societies all passed the Bank of England stress tests which were announced this morning (BBC, online). It was the second year running that the Bank of England has subjected the seven largest banks to tests to measure whether they would survive a financial shock. No bank was told to come up with a new capital plan. Two banks were found not to have enough capital strength, but both took steps to raise capital. The BoE said the results of the stress tests “suggest that the banking system is capitalised to support the real economy in a severe global stress scenario” (FT, £, online). All the morning papers ran stories predicting that the lenders would pass the test, many claiming that analysts would forecast that the banks will face higher hurdles next year. The BoE tested seven lenders: HSBC, RBS, Lloyds, Barclays, Santander UK, Standard Chartered and Nationwide Building Society.
The Bank Of England has also warned banks that it could force them to start building new capital buffers which they could use in stressed conditions. The FT (£, online only) has reported that the BoE has “effectively called time” on the post-crisis era of regulatory reform and repair and that it intends to “make active use of the time-varying countercyclical capital buffer”. However, the BoE has declined to raise the buffer – known as the CCB – from its current rate of 0 per cent.
Funding for lending scheme extended
Most newspapers report that the funding lending scheme (FLS) – encouraging banks to lend to small businesses – has been extended for a further two years. It will now end in January 2018 instead of 2016. The Guardian (p26) reports that by extending the programme the Bank of England and the Treasury are responding to concerns from challenger banks that they can’t use the scheme as easily as the more established lenders. The Independent (p48) quotes Paul Lynam, Chief Executive of Secure Trust Bank, saying the changes were “public recognition” that credit to SMEs was being restricted. Credit conditions are reported to have improved for small businesses but Mark Carney has written to the Chancellor saying they remained “relatively tight” compared to larger companies.
Household debt rises at fastest rate for ten years
Household debt is increasing as people “binge” on cheap credit cards and personal loans, according to the Daily Mail (p62). Figures from the Bank of England show the amount owed on personal loans and credit cards rose by 8.2 per cent, or £1.2 billion in the year to October, to £177 billion. The Times (£, p41) reports that Britons are borrowing at the fastest rate for a decade as low interest rates and improving economy is enticing homeowners to take out bigger mortgages. Overall household borrowing increased by £4.8 billion in November, just below September’s seven year high. There is speculation in the papers that the BoE’s financial policy committee could introduce measures to curb lending. Martin Beck, senior economic adviser to the EY ITEM Club, said: “The fact that rapid growth in consumer credit shows no sign of tailing off strengthens speculation that the FPC may have decided upon action to cool this area of borrowing in its November meeting”.Read more
Bank of England prepares to publish stress test results
The results of the Bank of England’s annual stress tests will be published tomorrow as the central bank considers imposing further capital requirements on the sector (Guardian, p21). As part of the stress tests, the big banks and building societies have been subject to a scenario that examines their ability to weather a dramatic slowdown in China and a contraction in the Eurozone. Speculation that the countercyclical buffer could be utilised for the first time tomorrow was sparked last week by comments from Andy Haldane, the Bank’s Chief Economist, that consumer credit had been “picking up at a rate of knots”.
Climate change summit begins in Paris
India’s Prime Minister Narendra Modi has warned that rich nations must continue to shoulder the greatest burden in the global fight against climate change (FT, £, p1). Writing in the FT (£, p15), he says: “Justice demands that, with what little carbon we can still safely burn, developing countries are allowed to grow. The lifestyles of a few must not crowd out the opportunities for the many still on the first steps of the development ladder.” India’s position will be crucial to securing a deal at the Paris summit, where a deal must be agreed by consensus.
Meanwhile, a report from think-tank IPPR claims climate change poses such a threat to the UK’s banking sector that the Government should impose mandatory ‘stress testing’ of City institutions to determine which are most vulnerable (Independent, p9). The report suggests that banks and pension funds could lose billions of pounds in loans and investment in fossil fuel companies if they have to leave sizeable amounts of their coal, oil and gas assets in the ground.
Government to publish competition plan
A new Government plan to boost market competition and reduce bills across a wide range of sectors will be published today (CityAM, p3). As part of the plan, a New Bank Start-Up Unit will be launched to support new entrants in the banking sector. Water, energy, broadband and legal services are among other markets highlighted. The Daily Mail (p4) reports that the Treasury is claiming that the plan could save the average family £470 a year. The Chancellor said: “Driving competition will improve choice for people and ensure they get a better deal. And cutting red tape will help businesses grow and thrive.”Read more
FCA’s PPI consultation
There is widespread coverage of the Financial Conduct Authority’s consultation on introducing a ‘time bar’ for PPI claims. The FCA released yesterday its consultation, including plans for banks to pay £42 million to fund an advertising campaign to tell customers that they have only two more years to claim compensation for any mis-sold payment protection insurance. The Telegraph (B3) reports that claimants have already been paid more than £21 billion by banks and that in about a quarter of cases, banks had to process claims from customers who never bought PPI. The FCA’s consultation closes on 26 February. If the plan is approved, it will set the ‘time bar’ end date for PPI claims in 2018. The Times (£, p69) reports Which? saying the ‘time bar’ was “hugely disappointing” and that the FCA should be requiring firms to proactively seek out customers owed money.
IFS research suggests the Chancellor may be forced raise taxes
Analysis continues of the Chancellor’s Autumn Statement in all the main papers. Research from the Institute for Fiscal Studies (IFS) has claimed there is just a 50-50 chance of George Osborne hitting his target of a surplus in 2019-20. CityAM (p1) claims the Chancellor’s deficit plan is on “thin ice” and economists think it is unlikely he will be able to keep his fiscal promises. IFS director, Paul Johnson, warned that the £10.1 billion surplus goal was “completely inflexible”. The Telegraph (p10) reports Osborne may have to raise taxes in order to hit the target he’s set. The IFS also claimed the Chancellor had been “lucky”, as it emerged he found out about six weeks ago that tax and growth forecasts were significantly higher than expected.
Buy-to-let stamp duty impacts housing market
New housing projects could stall and rents increase for private tenants because of Treasury plans to increase stamp duty, according to property analysts. The Guardian (p14) reports that the Chancellor’s plan to increase stamp duty for buy-to-let investors could lead to new housing developments stalling and rents increasing for tenants of private rented accommodation. The Chancellor has announced that buy-to-let investors and second home buyers will pay an extra three percentage points of stamp duty from next April, in a move to raise £3.8 billion in tax and help potential first-time buyers afford a home by discouraging buy-to-let investors. The Guardian reports critics are claiming it could have the opposite effect by increasing rents and removing a key source of funding for new housing developments. In the Daily Mail (p12), Brian Murphy of the Mortgage Advice Bureau, also says the “unexpected” announcement means “landlords are more likely to put in offers above the asking price to get through more quickly.”Read more
Fiscal watchdog warns that apprentice levy could damage growth
Following the Chancellor’s Autumn Statement yesterday, many papers report warnings by the Office for Budget Responsibility, the official spending watchdog, that the 0.5 percent apprenticeship levy on the payroll of firms over 100 employees, would damage wage growth. The FT (£, p5) reports the OBR as saying that the levy is “economically equivalent to a payroll tax, so — consistent with evidence on the incidence of such taxes — we assume that most of the cost will ultimately be borne by employees”. The warning added to a chorus of discontent from business about the levy’s scope, effectiveness and design. “We do not like the apprenticeship levy,” said Simon Walker, Director General of the Institute of Directors. “It is nonsense to call it an ‘apprenticeship levy’ — it is a payroll tax, pure and simple”. Carolyn Fairbairn, the new Director General of the CBI, added that the levy would affect more companies than anticipated and was the real “sting in the tail” of the Autumn Statement.
Banks approve 100 mortgages an hour
All papers cover the BBA’s monthly high street banking stats, which show that banks have approved £12.9bn worth of home loans in October, up 26 percent year-on-year and the highest value since July 2008. The Times (£, p56) reports the BBA’s Chief Economist Richard Woolhouse, saying: “these statistics show that housing market activity remained strong in October. Consumers remain confident and their incomes are growing. Mortgage rates are at multi-year lows and people are snapping up the very competitive deals being offered by banks”. The Guardian reports how the jump has been fuelled by record low mortgage rates. Lenders have seen a rush of borrowers taking out deals and remortgaging before speculation returns of an imminent interest rate rise, pushing borrowing levels to a post-financial crisis record. The BBA’s figures also showed there had been growth in borrowing by the wholesale, retail and manufacturing sectors, while lending to construction and real estate is still contracting.
ECB warns of emerging market triple shock
The Telegraph (B4) reports the European Central Bank (ECB) warnings that waning growth in emerging market economies has become an issue of “particular concern” to the financial stability of the Eurozone. The bank’s twice yearly financial statement highlighted that the “vulnerabilities stemming from emerging markets are increasing” and that China was still “of particular concern”, despite markets recovering over the summer. The FT (£, p16) adds that the central bank warned “a faster than expected withdrawal of monetary-policy accommodation” by the Federal Reserve could trigger a fresh bout of volatility. It came as the central bank announced that it would pause its €1.1tr bond buying programme over the Christmas and New Year holidays to “reduce possible market distortions” associated with lower levels of liquidity. Policymakers have voiced increasing concern about risks facing emerging markets. The International Monetary Fund (IMF) warned in October that emerging markets should “prepare for an increase in corporate failures”.Read more
Chancellor to focus on housebuilding in Autumn Statement
The FT (£, p1) reports that the Chancellor will today announce the biggest housebuilding drive since the 1970s in the Autumn Statement. He is expected to promise to build more than 400,000 new homes across England, as part of a £6.9 billion programme to encourage people to buy their own homes. The Daily Telegraph (p14) reports that the Chancellor is expected to say: “…there is a crisis of home ownership in our country. We made a start in the last parliament, and with schemes like Help to Buy the number of first time buyers rose by 60 per cent. But frankly we need to do much more.” The Chancellor is also expected to set out plans to cut welfare, but could be forced to delay his proposals to reduce tax credits.
Bank of England Governor before Treasury Select Committee
The Times (£, p1) splashes on a report that the Bank of England is planning a ‘backdoor interest rate rise’ to curb a potentially dangerous credit bubble. Governor Mark Carney told MPs on the Treasury Select Committee yesterday that the debt burden on households was significant and the Bank’s Chief Economist, Andy Haldane, warned that unsecured lending – in particular personal loans – was “picking up at a rate of knots”. The FT (£, p4) reports that the Governor hinted the Financial Policy Committee may decide to take further action to restrict such lending, including potentially raising capital requirements for banks.
Treasury agrees to meet with challenger banks regularly
The Daily Telegraph (B1) reports that the Treasury has agreed to meet with challenger banks at least four times a year. The paper reports that the new challenger bank high level advisory group will be chaired by the Treasury’s top financial services official, Charles Roxburgh. A memo seen by the Telegraph states: “The group will consider issues – be they of a policy, regulatory or legal nature – relevant to helping challenger banks to enter the market, expand and compete effectively with the incumbents.”
Meanwhile, the FT (£, p4) highlights the contrasting capital requirements for challenger banks compared to their larger rivals due to the different models used. James Daley, founder of consumer group Fairer Finance, said: “Clearly there’s a problem – if there’s appetite for new lenders to get involved, then government and regulators have a duty to bring down barriers to allow competition for UK consumers.”Read more
Autumn Statement anticipation
Speculation on the Autumn Statement is the main focus of the papers this morning. The FT (£, p2) looks at the scale of expected privatisations including of state-owned banks. The Daily Mail (p2) reports on the multi-billion pound increase in funding to the NHS expected to be announced tomorrow. Aditya Chakrabortty argues in the Guardian that Britain has “shrunk its public services for the benefit of its crisis prone banking sector” on its way to becoming “Austeria”. The Times (p32) focuses on the problems the Chancellor is facing thanks to large parts of the Government’s spending being ringfenced.
The Government’s Defence Review
There is widespread coverage today of the defence spending review. According to the Telegragh (B2, paper only), there will be an increased role for start-ups in the defence industry. The Guardian (p8-9) runs a two page review of the Government’s defence spending plans looking particularly at the potential risks that cyber attacks pose to the Trident nuclear programme. The Times (p9) covers comments made yesterday by the Government that cyber attacks on the UK will be treated as conventional military attacks when appropriate.
Rift in ECB
Sabine Lautenschläger, a member at the ECB’s Executive Board, said yesterday that she saw no need for any additional monetary policy measures or an extension of the central bank’s asset purchase program, Reuters reports. Her comments come even as ECB President Mario Draghi pledged last week to do more if required, as he outlined the positive economic impact of the bank’s bond-buying scheme.
According to figures released yesterday, in the week of Nov. 16 the ECB purchased public sector assets of about €12.57 billion under its quantitative easing program (Reuters). The central bank’s purchases under the program were recorded at about €12.58 billion for the week of Nov. 9. In a separate report published yesterday, the ECB said that while the leverage ratio may tempt banks to increase risk taking due to the ratio’s non-risk based nature, it also increases the stability of banks by constraining the build-up of excessive leverage.Read more
Banks should foot bill for fraud
A senior commander from the City of London police has demanded that banks help pay for the fight against fraud (Times, £, p2). Commander Chris Greany, who is responsible for Action Fraud and the National Fraud Intelligence Bureau, said “we need to have more support from the industry to help us fight fraud”. He added he was not sure whether that means that banks should invest cash or manpower, but that a partnership was needed to help police tackle what has become an “enormous problem”. However, Steve White, chairman of the Police Federation, said “asking banks for money looks like a desperate cry for help…what officers need is the cooperation of banks”.
His comments coincide with two studies released today on the extent of cyber crime. A report released by Deloitte discovered that 21 per cent of UK consumers had seen their details stolen and their bank accounts used to buy goods or services in 2015, five times as many people as two years ago (Times, £, p19). Another survey released today by security software company Norton by Semantic found that 22 per cent of Brits have fallen victim to cyber crime in the last year, at a total cost of £1.6 billion (City AM, p10).
New CBI boss warns that uncertainty over EU membership is hitting investment
Carolyn Fairbairn, the CBI’s new Director General, has urged Prime Minister David Cameron to accelerate plans for the UK’s referendum on its EU membership, warning that investment is beginning to suffer due to uncertainty caused by a protracted renegotiation (City AM, p1). Ms Fairbairn said, “I think uncertainty is playing into business decisions…we’re beginning to hear of business investment that’s slowing down”.
The UK is due to hold the referendum before the end of 2017 and Ms Fairbairn is of the opinion that “if that could be done quickly, we think it would be good for business”. Ms Fairbairn believes that it is the role of business to put the “economic case” for membership, although she acknowledged that some businesses who want to stay in the EU are “frustrated” by it (FT, £, p3).
Money launderers push billions through UK firms each year
The UK’s anti-money laundering (AML) rules are not fit for purpose and require a “radical overhaul” according to a report released today by Transparency International (Times, £, p11). The report finds that billions of pounds of corrupt funds are pouring into the country every year. The report also finds that the current system of supervision and enforcement, which relies on 22 separate agencies, is structurally unsound and recommends replacing the current “patchwork” with one super-supervisor. While reporting of suspicious activity “appears to be inadequate in almost all sectors”, Transparency International credits the Financial Conduct Authority for having the most effective supervision (FT, £, p4).Read more
Investors spoiled for choice as European lenders seek capital
As ABN-AMRO prepares to float, the FT (£, p18) reports how European banks in the UK, the Netherlands and Greece have raised more than $75bn from investors worldwide so far this year, according to Thomson Reuters. Given all the bank equity still to be issued in Europe this year, it is on course to top last year’s $93bn total, though it remains well below the record $236bn raised in 2009 when the financial crisis forced many banks to raise capital. James Chappell, banks analyst at Berenberg, says investors remain cautious about investing in Europe’s banks: “people are quite uncertain about the economic outlook at the moment in Europe and you have uncertainty around regulation”.
Chip and Pin could vanish by 2020
The Telegraph (p14) reports that the four-digit Pin will be phased out by 2020 according to experts, as banks push hi-tech ways to pay including fingerprint-readers and mobile phones.
Banks such as Halifax and Barclays believe that chip and pin is flawed and open to fraud so will therefore be obsolete within the next five years. Banks will nudge customers to use hi-tech readers or contactless payments in shops and ticket terminals instead of the typical “Chip and Pin” by arguing it is safer and offering discounts for using the new technology. David Webber of Intelligent Environments, which provides mobile payments software to banks said: “many customers fail to observe basic Pin security measures which demonstrates a dangerous ambivalence, putting them at risk”.
Mortgage lending at highest level since 2008 after surge in new mortgages
The Times (p46) reports that house price growth in the UK’s biggest cities will return to double digits this year as activity in markets that have been slow to recover from the financial crisis begins to heat up. This has been largely driven by large cities outside southern England, whose housing markets have been slow to recover but are now experiencing a revival. Separate figures from the Council of Mortgage Lenders found that gross mortgage lending reached £21.8 billion last month, 8 per cent higher than £20.1 billion in September. “As lending in the regulated mortgage space picked up over the summer months, the pace of recovery has improved. This looks set to continue over the closing months of the year with the factors helping support this recovery continuing to be low inflation, strong wage growth, an improving labour market and competitive mortgage deals,” said Bob Pannell, chief economist at the CML (Telegraph, B1).
ECB mooted monetary stimulus in October
Ahead of a crucial re-examination of the bank’s policy strategy on December 3, the FT reveals (£, p8) that the European Central Bank (ECB) seriously considered ramping up monetary stimulus as early as October. The publication of a set of accounts show that weak regional and global growth, as well as the Federal Reserve’s resistance to raising rates, almost forced the ECB to act sooner. The ECB is expected to announce a revamped €1.1tn quantitative easing package and will look to cut one of its benchmark interest rates deeper into negative territory. Timo del Carpio, economist at RBC Capital Markets, said the account shows a council “primed and ready for action”. He added: “Despite the delay between the meeting and the publication of its account, we consider the messages here are still wholly relevant to the contemporaneous policy debate”.Read more