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.
Global regulators to focus on risk and conduct
The FT (£, p20) writes that international bank regulators will shift their focus away from repairing banks’ balance sheets and towards conduct and risk-management issues. Bank of England Governor and Chair of the Financial Stability Board (FSB), Mark Carney, wrote to G20 finance ministers and central bank governors stating: “The scale of misconduct in some financial institutions has risen to a level that has the potential to create systemic risks.” The FSB will also develop an international response to the UK’s Fair and Effective Markets Review, whilst also addressing the withdrawal from correspondent banking by some lenders in markets which are viewed as too risky.
A “golden age” for UK private banking
The Telegraph (B6) discusses the UK’s “booming” private banking industry, stating that the market has enjoyed a “renaissance” as wealthy individuals are attracted by a stable legal system and a well regulated and transparent financial centre. The article quotes extensively from the BBA’s report on private banking A Wealth of Opportunities, which states that foreign residents who bank in Britain are “six times more likely to invest in the UK, and 10 times more likely to set up a business relationship in the UK”. The report also highlights that the sector pays £1.2 billion in income tax per year. The Telegraph concludes that the industry is “one of the bedrocks of the country’s modern capitalist system”, but will only stay in the ascendance if the UK “remains attractive to those with the deepest pockets.”
Use of tax credits to bolster capital defended by EU banks
A number of southern European countries have defended their banks’ use of deferred tax asset schemes to strengthen their capital position, reports the FT (£, p6). The move comes after the European Commission signalled a possible probe into whether the schemes – which allow lenders to accumulate future tax credits from credit losses – were illegal state aid.
An official at the Spanish economy ministry said: “The guarantees on deferred tax assets cannot be considered state aid because they are not applied in a discriminatory way to a single sector but to any Spanish company”. Meanwhile, Giovanni Sabatini, chief executive of the Italian Banking Association stated: “I find it bizarre to think that a measure that is intended to level the playing field between Italian banks and those of other countries should be considered state aid”.Read more
US regulator asks for small bank Basel exemption
US Federal Reserve governor, Daniel Tarullo, has said that the country should try to help community lenders – which he defined as those with assets of $10 billion or less – by simplifying the capital requirements required by the Basel Committee (FT, £, p7). Mr Tarullo was referring to the Basel III risk weighting rules, finalised at the end of 2013. According to the report, one Basel official said that it wouldn’t matter if smaller banks were exempted as the rules were designed for internationally active banks that could jeopardise global financial stability. For smaller banks, Mr Tarullo suggested alternative measures that would be the equivalent of a return to Basel I.
Shadow chancellor looks to reassure City pre-election
Shadow Chancellor Ed Balls has told the FT (£, p2) that his party understands the vital role played by financial services in the UK and won’t seek to drive them away, saying “you don’t cut your nose off to spite your face”. Mr Balls also said that his party “would not insist that banks dispose of branches once they exceeded a certain market share”, saying that instead it would trigger a competition review. He added that he hoped HSBC and Standard Chartered would remain headquartered in the UK.
The eurozone has seen petrol and food pricing rising after four months of deflation (Times, £, p47). Inflation was at zero in April, up from -0.1% in March and lows of -0.6% in January. According to reports, this pick-up led some economists to question whether European Central Bank chief Mario Draghi needs to continue with his quantitative easing programme, though Mr Draghi has intimated that he intends to push on with his plan. The FT (£, p1) reports that European share prices saw their first monthly decline of 2015 in April as “enthusiasm for Europe’s quantitative easing programme begins to fade”. The Guardian (p32), however, reports that uncertainty around the forthcoming UK election has led to a record £1 billion being withdrawn from funds investing in UK shares in March as cautious investors “switched their focus to continental Europe”, encouraged by quantitative easing measures.Read more
Poor growth figures expected to delay US rate rise
The Federal Reserve revealed yesterday that the US economy only grew by 0.2% in the first quarter, falling short of the 1.0% that economists were predicting. The front page of the FT (£) reports that the deterioration has been blamed on a surge in the dollar and falling investment in oil related industries. Commentators are predicting that this will push back the date at which the Fed will look to increase interest rates.
House prices rise lead to calls for increases in supply
Nationwide’s house price index finds that house prices rose at their quickest rate in April since last summer (Reuters). The FT (£, p4) reports that the building society’s chief economist Robert Gardner has said that there needs to be an increase in the supply of homes as well as demand. He warns that the house building sector is “subdued”. The article quotes from the BBA’s statistics, which shows that “mortgage approvals rose for the third month running in March to a six-month high. But this is still well below the long-run average and 20 per cent below early 2014.”Read more
IFS warning over bank tax increases
The Institute for Fiscal Studies (IFS) has warned that rising taxes for the banking industry could put City investment at risk, the Telegraph (B4) reports. In its pre-election analysis of Conservative, Labour and Liberal Democrat proposals for tax and benefits, the IFS said that using the banks to fund giveaways risked giving the impression that further arbitrary taxes on the sector might be expected.
The article quotes Stuart Adam, an economist at the IFS, saying: “If the aim is just to raise revenue then there is certainly a danger of relying on this as a cash cow and just giving the impression that there are just going to be everlasting increases almost every year almost as long as they can get away with it.” The IFS is quoted saying: “Yet another proposed increase, this time from the Labour Party, adds to the uncertainty and reinforces the damaging impression that further increases are to be expected on an arbitrary basis.” Read the BBA’s response to the latest Bank Levy rise here.
Meanwhile, the FT (£, p1) leads with news that David Cameron will today promise a law banning any rise in income tax, VAT or national insurance in the next parliament if the Conservatives win the election.
Businesses start to borrow more from their bank
The BBA’s March 2015 High Street Banking Statistics are widely reported in today’s papers. Figures released by the BBA yesterday revealed that borrowing by businesses has been positive in two of the last three months, and lending has improved across many sectors. The Times (£, p46) says the flow of credit to non-financial firms rose by £1.6 billion, after a fall of £345 million in February and an average drop of £1.3 billion over the past six months. BBA Chief Economist Richard Woolhouse is quoted saying: “We’re starting to see signs that businesses from many sectors are starting to borrow more from their bank. While it’s still too early to predict, these figures and the latest data from the Bank of England suggest that business borrowing has turned a corner.”
Coinbase given FCA approval
Bitcoin company Coinbase has gained the “green light” from the Financial Conduct Authority to launch its UK services, the FT (£, p4) says. Coinbase has created a “wallet” that allows customers to store, send and accept payments in the digital currency. Following the FCA’s approval, British customers will now be able to access Coinbase’s exchange and convert pounds into bitcoins. The Government and the Bank of England have made recent moves designed to allow more bitcoins to flow through the UK.
The paper quotes Brian Armstrong, chief executive of Coinbase, saying: “It’s really just early stages for bitcoin; you can’t use it easily in every country in the world. It wasn’t possible until recently to store it securely, and now we’re seeing all sorts of new applications being built on top.” The paper also says the BBA has warned that bitcoin could be helping to fund terrorism. Read the BBA’s response to the Government’s call for information on digital currencies here.Read more
Branches to stay open on bank holiday
The Telegraph (B5) reports that over 100 bank branches will remain open on Bank Holiday Monday. The paper notes that RBS will have extra mortgage advisers on hand, as “many people struggle to make it to branches” during regular opening hours. Allister Heath (Telegraph, B2) welcomes this news, suggesting that this is down to the growth in competitors on the high street. He recognises the “sensible strategy” of some lenders closing branches due to the uptake in banking technology, but adds that banks need to open their branches when customers have time to visit. He concludes that opening on a bank holiday is a “step in the right direction”.
Greece reshuffles bailout negotiating team
Greek prime minister Alexis Tsipras has overhauled his bailout talks team after “three months of fruitless talks with global creditors”, reports the FT (£, p1). The change in personnel includes the side-lining of Greek finance minister Yanis Varoufakis, after he was replaced as co-ordinator of the negotiating team. The Times (£, p30) writes that the change came about after a phone call between Mr Tsipras, the head of the Eurogroup, Jeroen Dijsselbloem, and German Chancellor Angela Merkel. Eurozone officials are “heartened” by the shake-up as they will now have better access to Greek ministries. Markets also welcomed the news, with the Athens stock market rising 4.4% and borrowing costs falling. Meanwhile, EUBusiness reports on comments by Mr Tsipras that a deal between Greece and its creditors will be reached by early May. Nevertheless, a Reuters poll of money market traders gives Greece a 40% chance of leaving the single currency.
ICB proposals “already overdue for repeal”
The recommendations published by the Independent Commission on Banking in 2011 should be reversed, according to banking consultant Simon Samuels (FT, £, p13). Mr Samuels states that the ring-fence is a “redundant relic” as a number of subsequent regulations have reduced risks identified by the Commission. He argues that the body’s proposals on the leverage ratio, capital buffers and personal accountability regime have been “superseded… [and] persisting with them will do real damage”. He concludes that these policies – alongside the Bank Levy – could “drive banks out of certain business lines” and “squander the competitive advantage in banking that the UK has long enjoyed”. Conversely, Satyajit Das comments that rules to reduce bank risk may have improved the ability to withstand financial stress “in theory but not in practice” (FT, £, p32). He highlights differing models used by banks to measure risk weights, suggests that leverage ratios “create adverse incentives” and argues that bank shares and debt are “overpriced”.Read more
Hong Kong rolls out the carpet for HSBC – concerns over high UK bank taxes
The weekend’s business pages were dominated by the news that HSBC is reviewing where it should base its headquarters amid concerns over the punitive banking tax regime in the UK and fears over the UK’s uncertain future in the EU. A former HSBC banker told Saturday’s Times (£, p50): “The UK has to realise that its actions have consequences and that you can’t just take billions out of a business and not expect it to do something about it.” The Hong Kong Monetary Authority was quoted by Saturday’s Times (£, p47) saying: “The HKMA takes a positive attitude should HSBC consider relocating its headquarters back to Hong Kong.” However, the Mail on Sunday (p91) reported that this might not go down well with US authorities who might look to block any move to Hong Kong. A banking lawyer told the paper that: “The US has got issues with China supervising banks and Hong Kong is increasingly managed by the Chinese. HSBC is not as mobile as you might think.”
In the Sunday Telegraph (B2) Jeremy Warner argued: “The bankers have been badly hit over the past five years by Britain’s regulatory backlash, and none more so than HSBC, which is perverse because it was one of the few UK banks robust enough to survive the crisis without the need for a bailout… Is HSBC bluffing? That’s what the politicians will believe. Back in 2008, Sir Martin Sorrell’s WPP actually had to go through with its threat to shift its tax domicile to persuade the then Labour government of the folly of attempts to tax multi-national profits. It may well be that a similar shock is required this time around. Already there is evidence of foreign banks relocating certain operations away from London to avoid the banking levy.”
Government has now sold over half of its stake in Lloyds
Saturday’s Telegraph (p33) reported that the Government has now sold off over half of its stake in Lloyds Banking Group. The Sunday Telegraph (B1) reported that the Treasury is working with leading city firms on plans to prevent short sellers from disrupting proposals for a mass sale of Lloyds shares to retail investors.Read more
HSBC to launch immediate review of location HQ
Sky News is reporting that at HSBC’s Annual General Meeting today the bank’s chairman Douglas Flint will announce that the bank will be conducting an immediate review into whether to move their headquarters outside of the UK. Reports say that the review is expected to take around 6 months. In an online statement the HSBC chairman said: “As part of the broader strategic review taking place, the Board has therefore now asked management to commence work to look at where the best place is for HSBC to be headquartered in this new environment.” The full text of Douglas Flint’s AGM statement is available online here.
Bank customers shopping around
The BBC reports that bank customers are taking advantage of the Current Account Switch Service, with many surveying the wider market and opting to take up accounts at smaller “challenger” banks. The article quotes figures from the Payments Council which show that a total of 1.14 million have switched to another account provider in the past six months – a 7% year-on-year increase. Andrew Hagger of MoneyComms said: “The figures show that although more people are voting with their feet and looking for a more suitable banking relationship, the vast majority are refusing to budge from their existing provider despite the array of enticing upfront cash incentives on offer.”
BBA chief executive lays out his general election wishlist
Anthony Browne, chief executive of the BBA, writes in CityAM’s I would definitely vote for you if… section to ask electioneering politicians to introduce measures to bolster the banking sector. His wishlist includes a shift in UK policy towards promoting growth rather than stability, a stable and predictable tax system, and for primary and free schools to have financial education on their curriculum as standard.
New chairman announces change ahead at Barclays
The new chairman of Barclays, John McFarlane, has told shareholders that he will instigate change at the bank – including closing certain underperforming divisions and cutting costs (Times, £, p38). In a letter delivered to shareholders as he officially took office Mr McFarlane said: “We need to get the errors of the past behind us, to achieve a satisfactory rate of revenue growth, greater cost discipline and a more dynamic reallocation of capital”. The comments were made as the bank held their annual shareholder meeting.Read more
Gapper: Europe needs homegrown investment banks
John Gapper argues in the FT (£, p11) that Europe needs Deutsche Bank to remain as a leading investment bank so that it does not become too reliant on Wall Street. He writes: “The City has always thrived by not being nationalistic or protectionist. But as the European Commission tries to forge a capital markets union to redress the continent’s reliance on bank-based lending, it requires institutions to support the transformation. Europe’s investment banks need not all be global in scale, there is an important role for domestic ones serving smaller companies and asset managers, but one or two would help. They would make it less likely that European finance dries up in a crisis as US banks retreat; less likely that rules are made in New York that Europe has to follow; and more likely that competition thrives. If no others accept the challenge, Deutsche should.”
Governments should spend as much on cyber as physical security
The President of Intel Security, Chris Young, has called for national governments to step up their spending on cyber security. He told the FT (£, p19): “Cyber space is becoming essential to every dimension of our lives so it should have the same level of resources as physical security. We’re nowhere near that — we’re not even on the path towards the minimum yet. In our physical lives in most cases we basically expect government to do most of the defending and enforcing of the legal system. In cyber security, most of the burden is on the private sector and citizens against attackers. I’m not saying we’re going to shift it back to the same as in the physical world, we just need to move a little bit.”
MPC votes against rate rise but takes “baby steps in hawkish direction”
The Bank of England’s Monetary Policy Committee has voted unanimously against a rate rise, but two members were reportedly considering changing their position. Alan Clarke from Scotiabank said: “Overall, the only way is up for interest rates – but not yet. The tone from the MPC seems to be taking baby steps in the hawkish direction”. A big factor in the decision to hold rates was lower than forecast wage growth. Markit’s chief economist, Chris Williamson, said: “The Bank of England is currently forecasting the economy to grow by 2.9% this year, fuelled by consumer spending rising on the back of higher real employee earnings. The worry is therefore that weak pay growth means the economy is reliant on ultra-low inflation to boost consumer spending power” (Guardian, p29).
Credit trends – rise in demand for borrowing on cards as consumers pay down overall debt
The FT (£, p4) reports that the Bank of England’s credit conditions survey has found that consumer demand for credit cards has increased, which the paper links to the restriction in availability of payday loans following the clamp down by the Financial Conduct Authority. Markit’s latest household finances survey has recorded one of its biggest falls in household debt since it began in 2008 – suggesting that families are taking advantage of cheaper prices to pay off borrowing (Telegraph, B3).Read more
Goldman Sachs warning over election outcome
Goldman Sachs has warned that a Labour-led government could spark a sell-off by investors, the FT (£, p1) reports. In a briefing to its clients the bank cited Labour’s plans to freeze energy bills, raise taxes and reform zero-hours contracts as policies that were likely to alarm investors. The briefing also said that a victory for Ed Miliband on 7 May would be viewed as “more problematic by the business community” than David Cameron’s return to Number 10, the Times adds (£, p6). Goldman Sachs also warned that small companies are at particular risk from the regulatory implications of a left-wing government, the paper says.
It a separate note, analysts from Citi said that markets appear “relaxed” about UK political uncertainty ahead of the general election, and argues that the election of a minority government, especially in coalition, could mean less risk of market-unfriendly policies than otherwise.
Sale of Northern Rock and Bradford & Bingley assets
The sale of mortgage assets is expected to raise billions of pounds, as UK Asset Resolution, the body tasked with disposing of the Government held Northern Rock and Bradford & Bingley assets, has this week started a huge asset sale by providing information to interested buyers, the FT (£, p21) reports. The bidding process is expected to be very competitive amid improved market conditions. David Edmonds, corporate finance partner at Deloitte, is quoted saying: “The combination of pent up demand and the UK economic recovery means sellers are all of a sudden in a great position.”
However, article warns that many challenger banks lack the scale to bid competitively for assets, leaving them at risk of missing out. The paper quotes one unnamed source saying: “If you want to sell a small portfolio, of say £500 million, then there’s a very long list of small banks who would be very interested. As soon as you boost the cheque to £1 billion, most fall away – it’s too big for them.”
ECB memo prompts fall in Greek bank shares
Shares in Greek banks fell by 4% yesterday after hearing news that the European Central Bank has drawn up a memo proposing to cap the emergency assistance (ELA) that they receive, the Telegraph (B1) says. The assistance is provisional on Greek banks continuing to remain solvent, but as domestic savers take their money out of the country the ceiling on the funds has been hit on an almost weekly basis.
The Independent (p50) adds that yesterday Greece’s three-year borrowing costs also jumped to just short of 30%. Greek prime minister Alexis Tsipras could meet German Chancellor Angela Merkel tomorrow, on the eve of a eurozone finance ministers meeting in Riga.
Elsewhere, Jeroen Dijsselbloem, president of the Eurogroup, is quoted by Reuters saying he expects Athens and its creditors to forge a new agreement in the coming weeks.Read more
French warning over Greek banks
Yesterday France’s central bank warned that Greece’s banking sector is on the verge of collapse, prompting the euro to fall to 0.6% to $1.074, the Times (£, p39) reports. The paper quotes Christian Noyer, governor of the Bank of France, saying: “At some point, Greek banks are likely to be unable to offer enough collateral to access refinancing even for emergency liquidity.” Little progress was made at International Monetary Fund and G20 meetings to discuss the possibility of Greece satisfying creditors to unlock €7.2 billion in financial aid by the end of April, and yields on Greek debt due to mature in 2017 have hit record highs, the paper writes.
However, in an interview with Politico, European Commission president Jean-Claude Juncker remained optimistic. He is quoted saying: “We are prepared for all kinds of events but I am excluding at 100 percent this Grexit, or Greek exit. There will be no default.”
Bank Levy causes big banks to consider London future
The Telegraph (B3) reports that HSBC chairman Douglas Flint has told Hong Kong investors that once the “mist lifts” in terms of regulation and structural reform in the UK, the bank’s leadership will “start to look at where the best place for HSBC is”. According to the article, HSBC shareholders are expected to push the bank for a change of location for its headquarters following the Chancellor using his last Budget to raise the Bank Levy for a ninth consecutive time. Standard Chartered have also faced calls from shareholders to consider relocation following the balance sheet tax hike. Read the BBA’s response to the Bank Levy announcement here.
Volcker calls for merger of US regulators
The former head of the Federal Reserve, Paul Volcker, has urged the US to follow the UK in streamlining regulation and consolidating the country’s range of financial watchdogs (FT, £, p10). Mr Volcker warned that lending by “shadow banks” is creating unchecked risks, saying: “At this point the non-bank markets are more important than the commercial banking markets and the fact that the regulatory structure doesn’t really reflect that is part of the problem.” He called for the abolition of the Office of the Comptroller of the currency and a merger of the Securities and Exchange Commission and the Commodity Futures Trading Commission.Read more