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.
Bank deputy warns on deregulation
Sir Jon Cunliffe, the deputy governor of the Bank of England, has warned against cutting back on financial services regulation to boost growth, but conceded that some of the regulation put in after the financial crisis needed “fine tuning”. He said: “Where it is justified we will need to revisit issues. But we should be careful about turning back the overall regulatory dial or trying to trade off the risk of financial instability for short-term growth.” Sir Jon also said that annual stress tests could be adjusted to become more countercyclical, and that the Bank’s Financial Policy Committee – on which he sits – is weighing up whether to introduce tests that would be more rigorous during good economic times than bad (FT, £, p2).
Bank surcharge will hit a range of firms
The Telegraph (p26) looks at the “ripple effect” of the new banking tax surcharge introduced by the Chancellor in his July Budget. The paper report that a range of firms that wouldn’t be considered to be “traditional banks” stand to face to the new levy – including the Ford car company’s financing arm, FCE Bank. The article quotes PwC automotive partner Philip Harrold, who describes this as “a classic example of the law of unintended consequences” and warns that “with most other other big car manufacturers running their finances out of Germany, this will only increase pressure on Ford to shift its 700-strong British operations to the continent”.
Polling suggests young prefer online banking
A survey of more than 1,000 adults for uSwitch.com revealed that more than half of all 18 to 34-year-olds have not set foot in a branch in the last three months, while more than three quarters had logged into their online banking account (Telegraph, p2). The same survey revealed that more than one fifth had never deposited a cheque.Read more
Prime Minister calls for action to fight corruption
In a speech later today Prime Minister David Cameron will promise a crackdown on corruption to prevent the UK from becoming “a safe haven for corrupt money from around the world”. Describing corruption as “the enemy of progress”, the Prime Minister will call for a “global effort” to tackle the issue, saying the world has “looked the other way for too long” (BBC News). For the first time, this autumn the Land Registry will publish information on property owned by foreign companies. The Times(£, p1) reports comments from Donald Toon, Director of the National Crime Agency saying that he believed money laundering had “skewed” property prices in London.
Government to consult on interchange fees
The UK Government yesterday launched a consultation on the proposed approach to implementing the EU’s Interchange Fee Regulation which will regulate the credit and debit card fees charged by banks. The new EU regulations are due to come into force in December and will cap credit and debit card fees at 0.3% and 0.2%. Commenting on the proposals the Chancellor, George Osborne, said that he “expected businesses to pass on these savings to consumers in the form of lower prices”. Commissioner Hill said that the reforms would help “pave the way” for more competition in online and mobile payments (FT, £, p4). Commenting on the proposals, the UK Cards Association warned that the reforms could see the end of reward schemes and new fees could be introduced to reduce the impact of the changes. The Association also raised concern that the proposals could mean card providers had less to invest in fraud prevention (Telegraph, £, p4).
Blueprint for EU reform agenda expected in October
Speaking at a joint press conference with the Chancellor, France’s economy minister Emmanuel Macron recognised the need for the EU to look at the “fair treatment of the [non-euro] countries” (FT, £, p2). However, the Times (£, p4) reports that the French minister also voiced frustration that the UK Government has still not set out detailed demands, commenting that “we need to understand what the UK wants”. The Prime Minister suggested on Monday that technical talks between the UK and the EU will continue until October when officials are expected to have the first blueprint of the reform agenda.Read more
BBA warns on proposed Basel rules
The BBA has written to the Chancellor over concerns that new Basel rules on capital will hit small businesses and first-time buyers, reports the Sunday Telegraph (B1). The proposals would see banks having to hold capital worth three-times a business loan’s value and reassessing the riskiness of mortgages, “even when borrowers pay down the debt or move into better jobs”. In a joint letter with a number of trade associations including the FSB and Association of Residential Letting Agents, the BBA called on George Osborne to encourage the Basel Committee to “rapidly rethink” the plans. BBA Chief Executive Anthony Browne told the Telegraph: “These new measures could mean that many lenders would have to significantly increase the cost of lending to key groups like small businesses and first-time buyers… The effect may well be to lock another generation out of our housing market”.
PM hopes for early EU vote
According to the Independent on Sunday, Prime Minister David Cameron will hold the EU referendum in June 2016 and will “announce the fast-tracked date as the centrepiece of his party’s annual conference in October”. The article stated that Mr Cameron believes that this timing will give a “better chance” of promoting his EU reforms and of “highlighting the economic risks Britain could face if it left the EU”. The paper also suggested that advisors have encouraged the PM to use a unionist vow – similar to that which preceded the Scottish independence referendum – in which Mr Cameron will “tell British voters that the EU will make good on reforms and exemptions if there is a vote to remain in the EU”.
Today’s FT (£, p2) reports that the Chancellor is in Paris to discuss Britain’s reform proposals. The paper reports that Mr Osborne has “told friends it may be possible to complete the EU renegotiation by December”, and that both he and Mr Cameron are “hoping to get an agreement” at the December European Council in Brussels. The Times (£, p2) notes that some senior Conservatives view an early vote as beneficial as it would avoid a clash with French presidential elections in spring of 2017 and German federal elections that September.
CMA unlikely to act on free current accounts
The Times (£, p41) reports that the Competition and Markets Authority (CMA) is “likely to refuse to insist that banks charge for accounts” when it completes its review of the current account market. According to sources involved in the evidence-gathering process, the CMA believes that it is “too complicated to stop free current accounts”. The article also notes that account number portability is “another area that the authority may find difficult to implement”.
Standards board to questions banks
CityAM leads with the news that the Banking Standards Board is to write to the chairmen of the seven largest banks and building societies seeking details on “ethical policies, cultural standards and how the pay of top bosses is set”. The questionnaire is the first major initiative by the body, and will form part of an overall assessment of the lenders to be published early next year. The article also notes that Hermes boss Saker Nusseibeh will become the first fund management member of the board in September.Read more
Housing market “hotting up”
BBA High Street Banking Statistics out today show that home loan approvals are 8% higher than in June last year following the effects of changes to mortgage rules. Within that, remortgaging was some 20% higher – probably reflecting borrowers’ appetite to lock into current fixed-rates and gain certainty over their future outgoings. Richard Woolhouse, Chief Economist at the BBA, said: “The housing market is beginning to hot up again, as we’ve seen a pick-up in the number of mortgage approvals for the last month. Interestingly, we’ve also seen an increase in the number of people remortgaging, which could be down to savvy borrowers taking advantage of competitive deals on fixed-rate mortgages ahead of a possible rise in interest rates.”
You can find the BBA High Street Banking statistics for June here.
Banks told to be clearer on interest rates
The Mail (p4) reports proposals from the Financial Conduct Authority that will oblige banks and building societies to give clear warnings to customers about when “teaser rates” end and to clearly state what interest rates are being paid on all communications to savers. The paper cites the BBA’s response pointing out that members’ rates reflect the Bank of England’s base rate.
The FT (£, p4) reports that the FCA also intends to work with the industry to make sure that by January 2017 people can switch their ISAs within seven days.
Small banks warn on competition
Paul Pester, the chief executive of “challenger” bank TSB, is the latest figure to warn about the potential impact of the bank surcharge announced in this month’s Budget. He has said that the 8% tax should kick in when a lender’s profits reach £250 million, not £25 million (Times, £, p45). Speaking of the difficulties the change stands to create at his own bank, he commented that it would “make it more difficult for us to grow and bring more competition to the UK market”.
In the Telegraph (B4) Chris Pilling from the Yorkshire Building Society commented on the potential knock-on effect for mortgage lending: “This level of lending can only continue if we can retain our profits and reinvest them back into our business…As the six largest building societies were responsible for 50% of the UK’s net mortgage lending in 2014, a tax which could impact our ability to fund growth in lending could have significant consequences for the mortgage market.”Read more
Greek MPs vote through reforms
The Greek parliament has voted through a second set of reforms, which means that negotiations on an €86 billion EU bailout can begin, BBC News reports. The measures – which include changes to Greek banking and an overhaul of the judiciary system – received 230 votes in favour and 63 against with five abstentions. BBC News quotes Prime Minister Alexis Tsipras saying: “We chose a difficult compromise to avert the most extreme plans by the most extreme circles in Europe”. Among the banking measures set out in the reforms are plans to adopt an EU directive to bolster banks and protect savers’ deposits of less than €100,000, and the introduction of rules that would see bank shareholders and creditors – not taxpayers – cover costs of a failed bank.
BoE director calls for tougher guidelines for traders
In an interview with the Telegraph (B4) Chris Salmon, the Bank of England’s executive director for markets, has said he is planning tougher guidelines for traders in the wake of rate manipulation scandals. Mr Salmon told the paper: “When you go and talk to people who run the FICC (fixed income, currency and commodities) trading teams, you get the impression the psychology has changed, there is greater caution within firms and within individual traders as a result of the crisis and some of the scandals which have followed it. But we can’t just rely upon the immediate psychological reaction to the crisis, because memories are short.” In response to this, the Bank has developed a new code of conduct for traders in foreign exchange markets. The new code aims to provide “more granular guidance to traders,” the paper writes.
Volcker rule arrives on Wall Street
The so-called “Volcker rule”, the regulation banning taxpayer-insured banks from making bets with their own money, came into force in the US yesterday, reports the Wall Street Journal. The paper says that the fact the regulation arrived “with little fanfare” shows how much Wall Street has changed since Congress ordered regulators to write the rule as part of the Dodd-Frank financial law five years ago. It adds that much remains uncertain about how the rule will work, and regulators will carry out their first compliance audits later this summer. Robert Maxant, a partner at consultancy Deloitte & Touche LLP, is quoted saying: “No one has experienced what life [under the rule] is going to be like, because they haven’t had to comply and they haven’t been examined yet.”Read more
Osborne defends bank taxes
Chancellor George Osborne gave evidence to the Treasury Select Committee on his Summer Budget yesterday. The Telegraph (B1) quotes the Chancellor defending his recent changes to the bank tax regime, says he insisted that he had “got the balance right when it comes to [bank] taxation”. Mr Osborne also said that it would be difficult to tax banks and building societies differently, adding: “You have to tax banking institutions as banking institutions. The regulatory regime makes a distinction… I think some mutuals are very large, and in size at least are similar to banks.”
Elsewhere, challenger bank Arbuthnot Banking Group – the parent of Secure Trust Bank – yesterday warned that higher taxes on bank profits will hurt lending to the real economy, City AM reports. James Cobb, Arbuthnot’s group finance director, is quoted saying that the Chancellor’s 8% Corporation Tax surcharge on bank profits will “slow our growth as a direct consequence” and “act as a brake on the challenger bank sector”.
Mr Osborne also told the Committee that he will not backtrack on plans to separate the retails arms of banks from their investment banking operations. He described the ringfencing as an “important step” towards making banks safer. The FT (£, p1, p3) adds that the Chancellor has ordered Whitehall departments to demonstrate how they would cut 40% off their budgets to “finish the job of repairing Britain’s finances”. He has launched a technical consultation on the “Bank of England Bill” to increase transparency and accountability at the Bank. Under the plans, the Bank will be brought under the purview of the National Audit Office and the number of meetings of the Monetary Policy Committee would be cut from 12 to eight. The Prudential Regulation Authority will also be brought within the Bank, ending its role as a subsidiary.
Greek Parliament to vote on reforms
Greek MPs will today vote on banking reform law and an overhaul of Greece’s civil code, the Guardian (p23) reports. The legislation is a condition of Greece’s creditors before they will begin negotiations on a proposed €86 billion bailout. A Greek government spokesman said negotiations would start immediately after the vote, with talks set to conclude by 20 August. This is the same day that Greece is due to repay €3.2bn to the European Central Bank. The paper adds that today’s vote will be a test for the Syriza government, and Prime Minister Alexis Tsipras is expected to rely on the support of three opposition parties to get the measures passed.
Moneyfacts has released data revealing that two-thirds of current accounts charge customers for an arranged overdraft, the Mail (p18) reports. Responding to the news, a BBA spokesman said:
“Across the board overdraft charges have plummeted by nearly £1 billion recent years, and a number of products now offer a fee and interest free facility within an approved overdraft limit.
“Banks are keen to help customers compare account charges in a variety of ways, from making charges easier to understand to providing useful online calculators and mobile apps. They also itemise charges on bank statements and use text alerts to communicate important account information instantly.”Read more
US and Australian banks told to raise more capital
The biggest US banks have been instructed to set aside a further $200 billion in capital according to the Telegraph (B5). They are to be subject to a capital surcharge based on the size of their group. Janet Yellan, chair of the Federal Reserve said: “A key purpose of the capital surcharge is to require the firms themselves to bear the costs that their failure would impose on others. In practice, this final rule will confront these firms with a choice: they must either hold substantially more capital, reducing the likelihood that they will fail, or else they must shrink their systemic footprint, reducing the harm that their failure would do to our financial system.” Another of the Fed’s board of governors, Daniel Tarullo, said that the new method “calibrates surcharge levels so that they will generally be higher than those required by the Basel method, and meaningfully higher for some of the firms. As we noted in considering the proposed rulemaking last year, the calibration adopted in the Basel Committee was towards the low end of the reasonable range suggested by economic analysis.”
The FT (£, p22) reports that Australian lenders will have to raise an extra $9 billion in capital as they are ordered to hold more against home mortgage lending.
LSE raises fears over risk modelling
Researchers from the Systemic Research Centre (SRC) at the London School of Economics have warned that if all banks adopt the same risk models that this could make the financial system more vulnerable to the next crisis. In a report the centre said: “If the authorities pick one modelling approach over another, they may just as easily be backing the wrong horse, a model that is less accurate.” Its analysis found that models introduced under Basel III “less accurately measured and forecast” risk than under the previous Basel II regime. The Telegraph (B3) reports that the SRC pointed to the fallout from the removal of the Swiss National Bank’s ceiling on the franc against the euro as an example of a shock which “demonstrates the inherent weaknesses of the regulator-approved standard risk models”.Read more
Discussions over ringfencing details rumble on
The Sunday Times (£, B1) reported that the Bank of England and the Treasury are looking at relaxing restrictions around the independence of new ringfenced entities being created by the biggest UK banks. It quotes a banker saying: “There are ways of making [this] easier. The question is, what is the definition of independence? Is it the ability to be independent on some decisions or all decisions? I do think the regulators will be flexible on that. The regulator has no interest in creating an unlevel playing field for British banks.” It also quotes Treasury sources saying: “You have to think very carefully about how all this would work and where the responsibility really lies.” The article suggests that there could be some flexibility found, with banks’ main boards allowed to make decisions on all parts of their operations, but with retail boards being given the final say.
The Guardian (p19) reports that Bill Michael from KPMG has warned that some banks might not be able to implement all the changes demanded by the new ring-fencing rules by the 2019 deadline. He said: “The task is so enormous that some of these banks face an uphill battle to be fully compliant. For some of the very large complex banks preparing for recovery and resolution and the ringfence, they are going to be pushing against [the deadline].”
Conservative MP calls for higher surcharge threshold
The Times (£, p38) reports that Conservative member of the Treasury Select Committee
Mark Garnier has called on the Government to lift the allowance for the new Bank Corporation Tax Surcharge from £25 million to £200 million so that it excludes most challenger banks. Paul Lynam, chief executive of Secure Trust Bank and chairman of the challenger bank panel within the BBA, said: “While large banks pulled back sharply following the financial crisis, challengers expanded their lending, particularly to SMEs and for housing construction, helping push forward the recovery.”
Wheatley resigns from FCA
The weekend papers all ran with the news that Martin Wheatley resigned as chief executive of the Financial Conduct Authority (FCA) on Friday. This was interpreted by many as a sign that George Osborne is attempting to appease the City. The Weekend FT (£, p2) quoted BBA Chief Executive Anthony Browne saying: “Martin Wheatley has played a big part in rebuilding confidence in financial services that was badly lost during the events of the last decade. We believed him to be firm, fair and sensible — always rightly putting the interests of customers first.” The Sunday Times (B6) reported that “Andy Haldane, the Bank of England’s chief economist, has been mooted as a strong contender” to replace him. The Independent (p52) reports that the FCA is set to have a renewed focus on dawn raids under its next chief executive.Read more
Carney hints at rate rise
The FT (£) leads with Bank of England Governor Mark Carney yesterday suggesting that interest rates could rise “around the turn of this year”. Dr Carney noted that historic short-term interest rates have averaged out at 4.5%, but added “it would not seem unreasonable to me to expect that once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages” (Times, £, p1-2). The BBC reports that any increase in rates are likely to be one quarter of a percentage point rather than a half. The Telegraph (p1) suggests that this will be “long-awaited relief” for savers and could also slow down house price inflation. However, Dr Carney stressed that any action to cool the economy would take 18 months to take effect
Greece given cash injection
The European Central Bank raised its limit on emergency loans to Greek banks by €900 million, which the FT (£, p1) describes as a mark of “faith in Greece staying in the euro”. However, ECB President Mario Draghi echoed the recent report by the International Monetary Fund, stating: “It’s uncontroversial that debt relief is necessary and I think that nobody has ever disputed that. The issue is what is the best form of debt relief within our framework, within our legal institutional framework” (Guardian, p18). The announcement of emergency funding resulted in Athens suggesting that its banks would reopen on Monday for the first time in three weeks, although capital controls will still remain in place. Meanwhile, the Times (£, p2) reports that Chancellor George Osborne has “claimed victory” over protecting the use of UK funds as part of the Greece rescue package.
HMRC powers to access bank accounts against Magna Carta principles
Dia Chakravarty, political director at the TaxPayers’ Alliance, writes in CityAM (p23) that the Government’s plan to give HMRC powers to remove money directly from people’s bank accounts “flies in the face of long standing property rights”. She argues that Magna Carta was created to make the Crown subject to the same laws as ordinary citizens. However, the current draft legislation “puts the Crown in a superior position in recovering debts over ordinary individuals and businesses, and denies taxpayers access to courts and judicial remedy for an indeterminate period while their accounts remain frozen”.Read more
Chancellor urged to rethink new bank profits tax
George Osborne is facing calls to increase the £25 million threshold for the new 8% profits tax he announced in last week’s Budget, the Times (£, p43) reports. The BBA’s Chief Executive Anthony Browne is quoted in the article warning that that the new surcharge unveiled by the Chancellor will harm competition. Writing in City AM (p8) Sky’s City Editor Mark Kleinman says that smaller banks should have been exempted from the charge and that it could reduce lending into the economy from these players by £10 billion.
Meanwhile, Reuters, Herald Scotland, the Daily Star and the Express and Star report research by the BBA that shows that banks face paying an extra £40 billion of taxes between 2010/11 and 2020/21 that other industries do not pay. This research can be read here.
City warned to prepare for Russian cyber attacks
Banks and other finance firms should be braced for more cyber attacks from Russia, a former GCHQ director has said. Sir David Oman is quoted in the Telegraph (B1) warning that if the West increases sanctions against Moscow in response to the U crisis banks may fall victim to more state-led retaliation targeting IT systems. US admiral Michael Rogers is also quoted in the article, raising concerns that UK banks are ill-prepared for such attacks.
Brussels poised to review capital requirement rules
Senior European officials are considering lowering capital requirement rules they have imposed on banks, the Times (£, 43) reports. Lord Hill, the European commissioner for financial stability, has said that the commission would look again at the amount of capital held by banks in a bid to boost lending and thereby improve economic growth across the EU. The commissioner said that lending to small and medium-sized enterprises had been particularly badly hit by rules which had aimed to make banks safer in the wake of the financial crisis.
UK households risk balance transfer “debt bubble”
The Telegraph (B3) reports a study by credit ratings agency Moody’s which raises concerns about growing numbers of customers who transfer debts to different credit cards to avoid paying down what they owe. The study argues that amid years of meagre wage growth many consumers have only managed to maintain their standard of living by taking advantage of low-cost credit. The report emerges the day after the Bank of England urged households to begin “managing their finances” in expectation of an interest rate rise.Read more