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.
Banks pay additional £40 billion in taxes
The Telegraph (B1) cites BBA research which reveals that banks are facing a £40 billion tax bill over this decade due to bank-specific taxes imposed by the Government. Last week’s Summer Budget saw the fifth tax imposed solely on the banking industry in as many years, with lenders paying an 8% surcharge on their profits above £25 million. This will generate £6.5 billion of revenue, whilst the Bank Levy will raise £25 billion for the government over this decade. BBA Chief Executive Anthony Browne told the Telegraph: “Banks expect to pay their fair share of tax. But they do not expect to be be singled out by the Chancellor for repeated raids which make it harder to lend to businesses and create jobs. The danger of these charges is that Britain has become seen as a less and less attractive place for banks to do business.” The full BBA press release can be read here.
Carney: rate rise “getting closer”
Bank of England Governor Mark Carney told the Treasury Select Committee that above-normal growth, rising costs and higher wages would force the Bank to act on interest rates, and “dismissed suggestions” that inflation returning to zero would prevent a rate rise (FT, £, p6). Although he gave no precise timing of a tightening of monetary policy, markets reacted by pushing the sterling higher and the price of UK Government bonds down.
The Governor also told the Committee that “considerable progress” had been made to end too big to fail, and that “the implicit subsidy in both ratings and in markets has gone down”, writes the FT (£, p6). Dr Carney added that the Bank is examining the buy-to-let market to “ensure that underwriting standards don’t drift from being responsible to becoming reckless”.
Greece deal hangs in the balance
The FT (£, p8) reports that the International Monetary Fund has sent its “strongest signal” that it may reject the new Greek bailout programme. A confidential memo sent to EU authorities argues that the “country’s debt is rocketing and the budget surplus targets set by Athens cannot be achieved”. The Times (£, p34) quotes the report: “The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date”. The FT notes that under the IMF’s rules, it cannot participate in a bailout programme if a country’s debt is “deemed unsustainable and there is no prospect of it returning to private bonds markets for financing”.
Greek MPs are voting on the bailout measures today, however the Times suggests that the leaked IMF report “could topple” Greek prime minister Alexis Tsipras, who is facing a rebellion from the far-left of his Syriza party. Meanwhile, the Guardian (p13) reports that Chancellor George Osborne has won the support of his German and Czech counterparts in arguing against the use of the European Financial Stability Mechanism – which could expose the UK to £850 million of losses – to bailout Greece. However, the European Council is said to be keen on the idea, which only needs a qualified majority vote to unlock the funds.Read more
New bank technology – “snap to switch” and “wave to pay”
ApplePay has launched in the UK today, allowing customers to pay with their iPhone6 or Apple Watch in shops and to travel around London (Telegraph, B3). Halifax has launched a new “snap to switch” service which allows customers to take a picture of their debit card. They can then upload this to their computer which will then automatically populate their details on the system reducing the time the switching process takes (Guardian, p22).
Read more about the BBA’s Way We Bank Now work on how technology is changing the customer’s banking behaviour.
Challenger banks write to the Chancellor over tax increases
The Times (£, p39) reports that a group of challenger banks has written to the Chancellor to warn that the imposition of a new corporation tax surcharge will lead to a reduction in lending by the group by £10 billion. According to the article the group will ask George Osborne to raise the threshold from £25 million a year to £200 million a year. It quotes Andy Golding from OneSavings Bank saying: “This seems like a measure to push us backwards”. The Telegraph (B5) reports that the crack-down on buy-to-let landlords’ profits in the budget could also hit smaller, specialist lenders.
ECB unlikely to raise liquidity for Greek banks this week
Greek Prime Minister Alexis Tsipras looks set to be forced to rely on opposition support to pass EU imposed reforms by Wednesday’s deadline, according to the front page of the FT (£). A separate article in the paper (£, p3) looks at how the European Central Bank will try to keep Greece’s banks afloat. It has asked eurozone governments to provide financial guarantees that would enable the ECB to sustain or increase the €89 billion in emergency funding it has already provided to Greek banks. This will enable Greek banks to re-open but with restrictions still in place. The article goes on: “The eurozone responded on Monday by making €10 billion available through its bailout fund, the European Stability Mechanism, which could be deployed if and when a third Greek bailout package is agreed — a process that could still take several weeks to complete…officials familiar with the ECB’s internal debate said it was unlikely to raise its cap on emergency liquidity to Greece this week. Before it can act, the ECB also needs assurance that Athens will make a €3.5 billion bond repayment to the central bank that falls due on July 20. It must also cover arrears totalling €1.5 billion to the International Monetary Fund.” In the Mail (p67) Alex Brummer warns that “of the four major banks in Greece, it looks as if at least two may be beyond redemption.” The Independent (p49) reports that “the Greek banking system is now also acknowledged to have a solvency as well as a liquidity crisis.”
The Telegraph (p1) reports that Britain could have to contribute £1 billion in emergency loans to Greece. The proposal goes against a previous EU agreement that the UK would not be asked to bail out Eurozone members. Asked about the British deal, a senior EU official said: “The council decision is a political agreement, and it can be argued that it does not prevent the activation of mechanism.”
Borrowing demand increases
The Bank of England’s Credit Conditions Survey has found a rising appetite for borrowing among UK households and businesses. City AM (p12) quotes BBA Chief Economist Richard Woolhouse saying: “It’s heartening to see that demand for lending from small businesses has increased significantly as this is a clear, positive sign that firms have the confidence to take on borrowing to invest and expand. At the same time we’re seeing demand for mortgages increase, as consumers take advantage of some of the extremely competitive mortgage deals that are available from banks at the moment. This – coupled with the increase in demand for personal loans – shows that people are starting to feel more financially secure and ready to commit to making bigger purchases.”Read more
EU reaches Greek deal
EU leaders have reached a “unanimous” deal on providing Greece with a third bailout in return for sweeping reforms that need to be passed by Wednesday. Prime Minister Alexis Tsipras said that after a “tough battle”, Greece had secured a “growth package” of €35 billion (£25 billion), and won debt restructuring. “There will not be a “Grexit”, said European Commission president Jean-Claude Juncker (BBC).
Commentators criticise Government’s new bank tax raid
James Quinn questions the wisdom of the Government’s new 8% corporation tax surcharge and worries that it might unduly hurt Britain’s smaller banks. He writes:
“If [George Osborne] is as intent on increasing competition as he says he is, then he should rethink this policy. To the casual observer, it would appear badly formulated and designed as much for political reasons as for economic ones. The BBA, the banking industry lobby group, has called for a strategic review of the way in which banks are taxed. Although the conclusions of any such review might leave Osborne wiping egg off his face, better that than stifling the very sector he has long craved to promote” (Telegraph, B2). In the Mail on Sunday (p92) Simon Watkins criticised the new corporation tax surcharge for banks. He wrote that it “makes no sense, either as a measure to improve banking behaviour, or as sensible economic policy… The extra tax is a cheap shot and the Chancellor needs to think again.”
Barclays prepares for ringfencing
The FT (£, p17) reports that Barclays is considering buying another retail bank in order to acquire another banking licence for when it splits its retail and investment banking arms to comply with the new ring-fencing rules. It quotes Barclays chairman John MacFarlane saying: “If we need another bank, I’ve told the guys to go and get another one… to either get permission to get one or go and get one so we [can] back into that” (FT, £, p17).Read more
Budget reaction day two: New bank tax comes under fire
Smaller banks have expressed their “intense frustration” with the Government’s decision to apply a new 8% Corporation Tax surcharge on all profits over £25 million. Analyst Gary Greenwood from Shore Capital told the Telegraph (B4): “It is completely counter-productive – the Government has been encouraging banks to grow and compete so they can act as appropriate challengers. This tax effectively impairs their ability to do that. Banks can lever up their equity by 10- to 20-times, so for every £1 of tax you take off them, you rip £10 to £20 of lending capacity out of the market. It is crazy. It will have a very negative impact on lending and on investor sentiment in the sector.”
The FT (£, p25) reports that “A number of small lenders are to hold a meeting on Friday morning with the British Bankers’ Association to air their concerns”. It quotes OneSavings Bank CEO Andy Golding saying: “We are trying to grow, invest, create jobs and provide consumer and SME choice — but an additional tax dilutes earnings and gets in the way of all these things.”
Writing in the Telegraph (B4), Paul Lynam, Secure Trust CEO and Chairman of the BBA’s Challenger Bank Panel, argues: “I share Mr Osborne’s desire to see a more competitive banking market in Britain. Challenger banks have helped to drive up standards of service across the board and have provided a key lifeline for businesses struggling to get finance from our larger rivals; which is why I find this surcharge so distressing.”
The Telegraph (B1) quotes Stuart Adam, an economist at the IFS, saying: “It’s a little hard to see exactly what the rationale is for a higher corporation tax rate on banks, other than a general principle that we want to tax banks heavily in some way. Why design it like this? The Bank Levy was designed based on an International Monetary Fund (IMF) model with a specific attempt to discourage risky leverage among banks. It has had mixed success in doing that. It doesn’t look like it’s well targeted either at those that got the biggest bail-outs in the crisis, or those that pose the highest risk in the future.”
Business groups oppose new HMRC powers
Business groups have criticised the Government’s decision to give HMRC powers to take money directly out of people’s bank accounts. The move is expected to raise hundreds of millions of pounds. John Allan, national chairman at the Federation of Small Businesses, told the Telegraph (p4): “We need an open debate about whether citizens are comfortable with such powers being in the hands of the UK tax authorities. In our view this undermines due process without independent, judicial oversight and is a step too far.”Read more
Chancellor’s “bold” Budget lowers Bank Levy but introduces new profits tax
George Osborne unveiled an unexpected shake-up of the way banks are taxed in his seventh Budget, announcing a gradual reduction of the Bank Levy and a new profits tax for the sector.
The Guardian (Budget special, p4) writes that the “surprise” cut in the levy will help some larger players, but that the new 8% profit tax will undermine the industry’s smaller banks.
Responding to the Chancellor’s Budget the BBA’s Chief Executive Anthony Browne welcomed the reform of the levy, but also said that introducing “yet another bank-specific tax will reinforce fears that Britain is become a less attractive place for banks to do business”.
Mr Browne said: “This is the fifth new bank-specific tax measure in as many years following fast on the heels of the big rise in March and will increase banks’ tax burden by nearly £2 billion. We still believe that the Government should conduct a strategic review of the way banks are taxed to ensure that the UK remains a competitive place for banks to do business.”
Writing in this morning’s CityAM (p24), Mr Browne said that yesterday’s changes will create more “losers than winners” for the banking industry.
“Around 30 banks pay the levy at the moment – hundreds may be liable for the new charge,” he wrote. “In particular, it will disproportionately affect challenger banks in our industry – smaller players that do not threaten the UK’s financial stability.”
Yahoo Finance reported that shares in some challenger banks tumbled after the Budget.
Other major elements of the Chancellor’s statement included:
BBA begins work on new service for grieving families
The BBA is working with the Building Societies Association and the Daily Mail to investigate how to set up a new service to make it easier for grieving relatives and friends handling a deceased individual’s estate. Writing in the Mail (p44), BBA Chief Executive Anthony Browne says the paper’s campaign to improve the service banks offer to bereaved people deserves to bring about “lasting change” in the way banks and other major companies treat customers at the very hardest of times.
He writes: “We want customers who have suffered a bereavement to be able to handle the financial implications of the death with the minimum of bureaucracy. But at the same time it’s vital that the right checks are in place. Any changes will need to fit in with the existing system of wills to make sure that only the right people get access to the deceased’s money. It’s also vital that fraudsters posing as next of kin can’t close down accounts and steal the money of someone who has not died.”
Other supporters of the campaign include Ross McEwan, chief executive of Royal Bank of Scotland, Francesca McDonagh, head of retail banking and wealth management for HSBC in the UK and Jeroen Hoencamp, chief executive of Vodafone UK, the paper adds (p35).
Chancellor to deliver his seventh Budget
Middle-class workers are to benefit from tax giveaways in today’s Budget, the Times (£, p1) reports. The paper says chancellor George Osborne is likely to raise the threshold at which workers start paying the 40p tax rate, and take-home pay for all taxpayers will rise due to a faster increase to the personal tax allowance. Continuing its analysis on p6, the Times suggests that Mr Osborne is unlikely to abolish the Bank Levy, but may alter the burden of payment by charging the Levy on UK rather than global balance sheets. Elsewhere, the FT (£, p1) reports that government insiders have described this Budget as “massive” in its scope. The paper adds that the chancellor will promise to be “bold in transforming education, bold in reforming welfare, bold in delivering infrastructure, bold in building the northern powerhouse, bold in backing the aspirations of working people”.
Regulators announce stricter rules for financial staff
Yesterday the Financial Conduct Authority published the final rules for the new Senior Managers Regime, which is designed to improve accountability in the City. The FT (£) reports that the rules will come into force next year, following the recommendations of the Parliamentary Commission on Banking Standards. The paper adds that the FCA is consulting on adding algorithmic traders to the new regime. Commenting on the plans, BBA Executive Director Simon Hills said: “This new framework will help to restore trust and confidence in the banking industry damaged by the events of the last decade. A banking industry that sets the gold standard for accountability is good for customers and investors as well as those serving in it.”
China’s steep equity decline continues
More than two thirds of all listed companies on the Shanghai and Shenzhen markets have halted trading in their shares, as Beijing struggles to insulate China’s economy from a steep equity decline, the FT (£, p1) reports. Commodities were also hit hard yesterday, with the price of copper futures on the London Metal Exchange dropped to its lowest level since 2009, falling 8.4% in two days, the paper adds.Read more
BBA warns of Bank Levy risk to UK competitiveness
In an interview with the Telegraph, BBA CEO Anthony Browne has warned that global banks are “increasingly reluctant to do business in the UK” due to the Bank Levy, regulation on pay and the upcoming EU referendum. He stated that international banks are constantly reviewing their business bases, but that “the trouble is that in London the negative side has got so much longer and positive side shorter. For a lot of them, they’ve reached a tipping point, and moved the operations elsewhere”.
Citing the Bank Levy as a particular cause for concern, Mr Browne said that it is “one of the most bizarrely designed taxes in British tax history… the more banks deleverage and the more that banks move operations overseas, then the higher the rate is for the existing activity caught by the tax, so you end up with a vicious circle where the tax rate gets higher and higher and the activity gets less and less, and the more the rate goes up”. He concluded: “We don’t want to end up in the second tier of financial services countries.”
Greece to present bailout proposal
The Greek government will present a new reform plan to eurozone leaders tonight in an attempt to renegotiate a bailout plan. However, the Times (£, p1) reports that Angela Merkel, backed by leaders from the Netherlands, Austria, Spain, Portugal and other eurozone states, will tell Greek prime minister Alexis Tsipras that there is “no deal on the table for a third Greek bailout”. The Telegraph (p1) states that the Germans believe a new debt relief deal is “impossible” as other EU states may then also demand a bailout.
This comes after the European Central Bank adjusted collateral rules meaning that Greek banks have to “stump up more assets in exchange for emergency loans” (FT, £, p1). The Bank maintained the cap on these loans at €89 billion, and expects Greece’s four largest banks to retain access to them. CityAM (p1) notes that Greek banks will remain closed today and tomorrow. Whilst addressing the House of Commons yesterday, chancellor George Osborne said that HM Treasury had a “number of contingency plans [which] we just hope we don’t have to put into operation” in case UK tourists are unable to access euros (Telegraph, p6).
The FT (£, p6) also notes that EU legal experts have been “combing through the treaties” in order to find grounds for a possible Greek exit from the eurozone. Nevertheless, the FT (£, p7) states that Greece’s best ally to remain in the eurozone could be France, as president Hollande has “emerged as a tireless and lonely advocate for keeping Athens in the fold”.
Banks expand digital payment services
Barclays has announced a deal with digital payment service Zapp to allow customers to make online transactions through a “pay by bank” mobile app (FT, £, p4). The announcement comes as Apple Pay launches in the UK this month, which will allow consumers to pay on their credit or debit card via their smartphone. Other lenders which have entered into a joint venture with Zapp include HSBC, Nationwide, Metro and Santander. The article cites figures from a BBA/CACI report which reveals that customers are set to check their current account 895 million times this year on mobile devices, compared to 705 million interactions in branch.Read more
Tyrie: Cut in protection for savers is “absurd”
Saturday’s Times (£, p2) reported that the Prudential Regulation Authority has reduced the amount of protection that savers will have in the event of a bank failure from £85,000 to £75,000. The compensation level is set under the European Deposit Guarantee Schemes Directive and is recalculated every five years. It is set at a sterling amount equivalent to €100,000 and had to be reduced as the pound strengthened. Treasury Select Committee chairman Andrew Tyrie has described the decision as “absurd” in the Mail. Today’s Telegraph (B3) reported that the BBA described the decision as “disappointing… It had become well known and recognised by customers and banks alike. Our firms will work with the PRA and FSCS to implement the new £75,000 limit and assess the implementation issues that arise given that the transition period ends on 31st December 2015”.
Varoufakis resigns after Greek no vote
Greek finance minister Yanis Varoufakis has quit just hours after the Greek government won a ‘No’ vote in the referendum on the bailout deal it was offered by its European creditors. In a blog entitled “Minister No More!” he wrote: “Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today. I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum. And I shall wear the creditors’ loathing with pride” (FT, £).
The Mail reports that the David Cameron, George Osborne and Mark Carney will hold talks this morning to discuss the fallout from the referendum result. The BBC reports that stock markets in Europe and Asia have fallen this morning as investors move money out of riskier assets to safe havens.
BBA calls for Bank Levy sunset clause
The FT (£) reports that the BBA has written to the Chancellor to say that the Bank Levy is “causing damage”, and called for a cap on its rate and a “sunset clause” to phase it out after a certain period. The Telegraph (B1) quotes BBA Chief Executive Anthony Browne saying: “The time is overdue for a strategic review of the Government’s policy for taxing banks, to ensure that the tax regime for banking remains competitive. We would like the Government to consider reform of the Bank Levy.”
Mark Garnier, a Conservative MP and member of the Treasury Select Committee, said: “In my personal view I think we have reached a tipping point. I don’t think now is the right time to get rid of it, but I think there should be some ‘forward guidance’ on when it might be phased out.” The Times (£, p34) predicts that the Chancellor could announce a review of the Bank Levy in the Budget this week.
The ask formed part of the BBA’s submission to the Government ahead of the budget – you can read the full document here.Read more
Cunliffe warns over mortgage debt
The front page of the Evening Standard reported that Deputy Governor of the Bank of England Sir Jon Cunliffe has raised concerns over the size of UK households mortgage debts. He said: “Our concern is not so much about house prices, it is the chain between high house prices, prices growing faster than people’s incomes, and people having to take out bigger and bigger mortgages and the debt that families then have relative to their income growth. It is that debt-to-income (ratio) of British households that creates the risk. The market cooled down last year. Prices stopped growing as fast as they have been, mortgage approvals came down. There are now signs the market is coming back up again. Given the high level of debt to income we have in the UK anyway, and the ability of this market to move very fast, this is something we need to watch.” Figures from online estate agents SellMyHome.co.uk showed that half of all first-time buyer loans in London were for properties priced between £250,000 and £500,000 this year.
IMF calls for debt relief for Greece
The International Monetary Fund has said that Greece will need an extra €50 billion over the next three years to stabilise its finances. It has also said that the country needs debt relief in the form of extended repayment periods and lower interest rates. Greek Finance Minister Yanis Varoufakis has repeated the Greek government’s insistence that it wants to stay in the euro regardless of the result of the referendum on Sunday. He said: “Our government is determined to stay in the euro, it’s not on our radar screen to do anything other than that” (BBC). Standard & Poor’s has estimated that a Greek exit from the euro could cost other EU member states over €150 million in debt write offs (Times, £, p45).Read more
Greek saga continues
In a televised address, Greek prime minister Alexis Tsipras urged his fellow countrymen to vote No in the upcoming referendum, describing the country’s creditors as “extremist conservative forces” who are “blackmailing you to say Yes to everything without any prospect of exiting the crisis” (FT, £, p1). This came hours after a letter was published which suggested that Mr Tsipras had accepted many of the terms of the bailout. However, creditors rejected the proposals as they “could not form the basis of the new €29.1 billion bailout programme Athens now seeks”.
Eurozone finance ministers agreed that negotiations will be put on hold until after Sunday’s referendum. Meanwhile, the European Central Bank kept Greek banks’ access to emergency loans at just under €89 billion. However, the Times (£, p32) reports banks are expected to have run out of money by the time Greece go to the polls on Sunday, with cash machines having already run out of €20 notes yesterday.
BoE report highlights risks to UK economic stability
The Bank of England’s Financial Stability Report revealed that the central bank is keeping watch on the situation in Greece, and is willing to take “any actions required” to keep the financial system stable and secure. The report states: “The [BoE] will continue to monitor developments and remains alert to the possibility that a deepening of the Greek crisis could prompt a broader reassessment of risk in financial markets” (FT, £, p2). The Times (£, p39) points to concerns over the buy-to-let market, with the Bank warning that “lending to landlords is expanding far faster than the rest of the mortgage market”. The Guardian (p26) notes that other risks include the reduction in market liquidity, Britain’s current account deficit, cyber attacks and the scale of bank fines.
Governor Mark Carney also pointed to an assessment of financial regulation since the crisis, addressing unintended consequences if necessary. “We need to take stock of everything that’s been done…If there are some inefficiencies we are mature enough to make some adjustments”, he said. However, CityAM (p2) reports that Dr Carney played down the risk of financial institutions leaving the UK, stating they would still have to comply with international regulations and standards. He added: “The competitiveness that’s built into the [UK financial] system is much bigger, is much more robust, than any one individual institution.”Read more