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.
Osborne: a Conservative government will look at account number portability
Saturday’s papers reported that Chancellor George Osborne told the International Monetary Fund on Friday that a Conservative government would look at introducing account number portability and that it would have a target of granting fifteen banking licenses to newly set up banks. He said: “Increased competition is needed and we will make it far easier for customers to move to another bank by encouraging more new banks to set up and we will look at whether customers should be able to take their account numbers with them to a new bank.” The party also pledged to make Dr Ros Altman a minister with responsibility for financial consumer protection and financial education (Mail, p106).
The Conservative Party press release said: “We will work with the Payments System Regulator on whether to introduce total account portability, either through technology based solutions or account number portability. Giving consumers a single identifying number which they can use to transfer from bank to bank could make it much easier for consumers to switch accounts, creating more competition and more choice.”
Conservatives plan Lloyds share sale to public
Sunday’s papers reported that the Conservatives have pledged to sell off £4 billion of the Government’s shares in Lloyds directly to the public if they are elected into Government. It would make it one of the largest sell-offs of Government shares to the public since the 1980s. In order to incentivise people to hang on to the shares, which would be traded at a 5% discount, a loyalty bonus will be offered of one free share for every ten held for at least a year after the sale, up to a maximum bonus value of £200 (Mail on Sunday, p10). However, Business Secretary Vince Cable warned that the ongoing Competition and Markets Authority investigation into retail banking could scupper the plan if it had recommendations that affected Lloyds. He told Sky News: “If that happened, it would be very difficult [for the Conservatives] to implement their plan. Mr Osborne probably didn’t think about the implications of the CMA inquiry before announcing it.”
Professional services responsible for fall in UK productivity
Research by the FT has found that the UK’s “productivity puzzle” is largely driven by a underperformance in four sectors – professional services, telecommunications and computing, banking and finance and manufacturing. In a separate article inside the paper, the FT (£, p3) warns that: “In banking, output has declined since 2008 as balance sheets have shrunk and activities such as a selling personal protection insurance have ceased, while at the same time as staffing has continued to rise to meet stiffer regulations.”Read more
IMF “tough” on prospect of Greek default
The International Monetary Fund (IMF) have told the Greek government in the “toughest language to date” that they would be expected to make a debt payment due imminently (Telegraph, B1). IMF director Christine LaGarde said: “We have never had an advanced economy asking for payment delays. It is clearly not a course of action that would be fit or recommended”. She said that a delay would mean extra contributions from other countries – some of whom are in worse financial circumstances than Greece. The Athens government are due to pay £1.2 billion for wages and pensions and have signalled that they may have to seize the assets of the state-owned enterprises at the Bank of Greece and “raid the country’s pension funds in a last ditch manoeuvre to avert bankruptcy”. The BBC reports that fear of a Greek default has seen a rapid rise in the country’s borrowing costs, with their three-year bonds jumping from 3.5% to 27%
China backtracks on plans to regulate banking technology
China has abandoned plans to regulate technology in the banking industry in a way that would “favour domestic producers at the expense of foreign imports” (FT, £). According to reports, a notice sent to banks this week by the China Banking Regulatory Commission and the Ministry of Industry and Information Technology said the regulations would be revised and reissued after feedback had been solicited. This follows lobbying from the US on this and a number of other new cyber security rules, including a draft counter-terrorism law that would require internet and telecoms companies to store their data on Chinservers and give public authorities the encryption keys.
Politicians warned on relying on economic forecasts
The IMF have warned that the UK will struggle to balance its books by the end of the decade, despite domestic forecasts predicting a surplus over the same period (FT, £, p4). The disparity is due to the IMF’s expectation that medium-term growth will settle at between 0.2 and 0.4 percentage points lower than UK forecasts. Whilst this presents a problem for all of the main parties, the Conservative Party have promised to balance the books by a set date, and the Labour Party wants to run a surplus on the current budget as soon as possible. Carl Emmerson, deputy director of the Institute for Fiscal Studies, said policymakers needed to remember the element of uncertainty in all forecasts, warning that they should not “promise things you can’t guarantee”.Vicky Redwood, of Capital Economics, told the paper that economists and politicians were “significantly overestimating” the effect of the financial crisis and recession.Read more
Mobile technology helps increase access to banking
The proportion of the world’s population with a bank account has grown by 11% in just three years, according to the World Bank’s Findex Report covered by the BBC. The study, which found that there are still 2 billion people who do not have access to banking services, claims that mobile phones have been a catalyst for improving access to banking services. It also found anomalies between the number of men and women with bank accounts in some countries. Thirty seven per cent of women have their own account in South Asia compared with 55% of men. To read the BBA’s Way We Bank Now work click here.
Schauble gloomy on deal with Athens
The front page of the FT (3, p1) reports claims by Germany’s finance minister that a deal to allow Greece’s government to receive more bailout money is now highly unlikely, raising the prospect that the Mediterranean country could go bust in mid-May. Speaking ahead of a crunch meeting of EU finance ministers next week, Walter Schauble said: “Nobody expects there to be a deal.” The ratings agency Standard and Poor’s yesterday downgraded Greek sovereign debt to junk status.
Draghi pledges to stick with QE
Mario Draghi has said the European Central Bank’s (ECB) quantitative easing programme will continue despite signs of stronger economic recovery in the Eurozone, the Times (£, p37) reports. The ECB’s president compared the idea of abandoning QE so quickly to a marathon runner quitting a race after one kilometre. Yesterday’s ECB press conference was disrupted by a lone feminist protestor who unleashed a glitterbomb laced with confetti and repeatedly shouted “end ECB dictatorship”. No injuries were reported.Read more
Competition “hots up” in current account market
CityAM (p1) writes that competition in high street banking is “intensifying” following the introduction of the seven-day switching service, citing Barclays’ decision to offer cash incentives to customers. The article notes that over 100,000 people now switch their bank account every month. CityAM’s (p2) Tim Wallace comments that the impact on banks of the current account switch service is “startling”. He writes that banks are “improving the way they treat customers” and are offering “eye-catching cash offers” to customers. He concludes that the banking market is “well and truly shaken up”.
IMF – UK growth rate “solid”
The International Monetary Fund described Britain’s economy and growth rate as “solid” in its twice-yearly World Economic Outlook, and called on the Bank of England not to raise interest rates until mid-2016 at the earliest, reports the FT (£, p2). The Fund stated that “continued steady growth is expected, supported by lower oil prices and improved financial market conditions”, and forecast UK growth of 2.7% this year, falling to 2.3% in 2016. The Mail (p2) reports that the UK has now overtaken France as the second largest economy in Europe. However, the FT notes the Fund’s warning that house building should be a “priority” for all political parties. In addition, the Times (£, p37) states that the report aired a note of caution for the North Sea oil industry, cautioning that it would be hit harder than other parts of the world by a fall in crude oil prices due to “higher operating costs”.
Reaction to record low inflation
ONS figures yesterday revealed that inflation remained at 0%, the lowest since records began. The FT (£, p4) notes that core inflation – which strips out energy and food prices – recorded a nine-year low of 1%. However, the paper observes that “there are no indications of purchases being delayed in anticipation of lower prices”, with data from the British Retail Consortium showing an increase in retail sales of 3.2% in March. The Telegraph (B1) notes economists expect a “50-50 chance of deflation in the next few months”, but the Guardian (p19) reports that both Europe and the US have experienced deflation in the past few months.
Brussels to block UK timetable on treaty change
European Commission president Jean-Claude Juncker has ruled out any treaty change negotiations on the UK’s relationship with the EU until 2019, two years after the Conservatives wish to hold a referendum, according to the Times (£, p1). An official close to the president told the paper: “No treaty change proposals are envisaged until after November 2019, the end of Mr Juncker’s mandate as president of the commission”.Read more
Warning over globalisation of capital markets
A new report by PwC has predicted that geopolitics and regulation will “throw the globalisation of capital markets into reverse” in the next five years, the FT (£, p30) reports. The advisory firm believes that Asia will develop financial centres that rival London and New York, and multinational banks may have to exit markets or regionalise operations as capital retreats behind borders. PwC’s report Capital Markets 2020 also warns that the implications of “severely Balkanised regulation…are only beginning to be understood” and geopolitical tensions are likely to increase instability. It also states that the EU’s efforts to build a “capital markets union” and common bank supervisory systems go against the global trend.
Click here to read the BBA’s position paper Tuning ‘Capital Markets Union’.
Survey reveals City’s election concerns as sterling falls
Chief financial officers (CFOs) working at large private UK companies are concerned that policy changes following the general election could put the economic recovery at risk, the Guardian (p21) writes. A survey by Deloitte revealed CFOs feared changes to fiscal, monetary and job market policies after 7 May were likely to be harmful. The effect of a vote on Britain’s membership of the European Union was cited as the second biggest source of anxiety amongst the survey’s 108 respondents.
Meanwhile, City AM (p2) says sterling fell to a five-year low against the dollar yesterday, after dropping by as much as 0.5% to $1.45 to the pound. Nervousness by businesses over the election outcome and low inflation dampening the prospect of a rise in interest rates played a role in yesterday’s figures, the paper adds.
Investors turn to eurozone inflation bonds
The FT (£, p28) reports that the anticipated launch of quantitative easing by the European Central Bank last month caused a flow of €400 million into exchange traded funds that track inflation-linked eurozone bonds. Investors poured money into the funds faster than at any time in the last five years, highlighting a shift in inflation expectations driven by QE, the paper writes. It quotes Simon Colvin, vice-president of Markit, who said this showed that people are taking more notice of inflation and are looking to protect themselves from it. The paper adds that inflation has remained below the ECB’s 2% target for more than two years and consumer prices have continued falling as demand and energy prices remain low.Read more
Basel rules risk “forcing economy into the slow lane”
The Times (£, p44) reports on the BBA’s warning that the Basel Committee’s review of risk weights could significantly reduce the amount of lending to small businesses and first time home buyers. The submission warns that: “The penal increase proposed will have profound effects on SMEs, which runs completely counter to the policy of many governments and the G20 as they seek to encourage businesses to grow.”
In an article for the Times, BBA Chief Executive Anthony Browne warns: “If these proposals get the green light, they could have a chilling effect on the business-lending market in Britain. Banks will have to hold significantly higher levels of capital across all types of business loans, regardless of whether that type of loan has been shown to be risky in the past. Regulators should instead focus on areas where there have been problems in the past — commercial real estate is an obvious example — rather than this blanket increase in capital levels… We would probably not want to be forced to pootle down the motorway at 20mph. We should also avoid forcing our economy into the slow lane.”
Rise in mobile and card payments leading to “death of cash”
The front page of CityAM heralds the “death of cash” as new figures from Halifax found that cash makes up just £18.33 of every £100 spent in the UK. The article reports that: “Cheques account for just 1.2 per cent of all current account transactions, and cash withdrawals make up only 16.6 per cent of account activity. By contrast debit card purchases make up 56.7 per cent of current account transactions, with direct debits accounting for another 19.4 per cent.”
Meanwhile, Barclays is predicting that in ten years’ time nearly half of all purchases will involve a mobile device, rising from £9.7 billion annually to £53.6 billion in 2024. Spending which includes a mobile at some point will amount to £112 billion in that year, amounting to almost half of all shopping.
Banks call on government to tackle claims management firms
The Times (£, p42) reports that banks are calling for further measures on claims management companies and their practice of using one letter to gain permission to contact multiple banks about a range of products that the customer may have been sold. The article reports that “the industry is calling on the Ministry of Justice, which regulates claims companies, to introduce a standard letter of authority that would require a claims company to sign people up for one product at a time and would be the result of a detailed conversation with the potential claimant”. The MoJ responded saying that it was taking measures to address “cross marketing”.Read more
Greece repays IMF as leaked memo suggests eurozone prepares for “Grexit”
Investors showed signs of relief yesterday as Greece repaid €450 million it owed to the International Monetary Fund, sending bond yields sliding, the FT (£, p6) writes. The paper says yields on Greece’s shortest dated notes declined, with three-year bond yields falling 54 basis points to 20.08% and five-year bonds falling 30bp to 14.98%. Greek prime minister Alexis Tsipras last month warned that his country would not be able to pay international creditors and social welfare payments without urgent financial assistance from the eurozone.
Meanwhile the Times (£, p33) reports that eurozone countries are secretly drawing up plans to expel Greece from the single currency, as they prepare for the country to be declared bankrupt next month. A memo, which has been leaked to a Finnish newspaper, has revealed preparations for a Greek exit from the euro and warns of “very difficult political decisions” this spring. The Times adds that Greece has until next Friday to put forward a new programme of reforms that must then be agreed by all eurozone creditors to unlock a further £5.2 billion of loans needed.
Growth in emerging markets slows
Christine Lagarde, managing director of the IMF, has warned that the world faces low growth and high debt and unemployment unless policymakers take action, the FT (£, p6) writes. Ms Lagarde said that the “new mediocre” must not become the “new reality”, as news broke that emerging markets (EMs) have slipped to their slowest pace of economic growth since the 2009 financial crisis. Data from three research companies that monitor emerging markets growth figures found that developing nations are struggling with the effects of a stronger US dollar and weaker commodity and oil prices, the paper says. It quotes Neil Shearing, chief emerging markets economist at Capital Economics, saying EMs were able to recover quickly from the financial crisis, but this slowdown is longer in the making and driven by internal factors.
Energy firm UK Oil & Gas Investments (UKOG) has announced that there could be 100 billion barrels of oil lying under fields close to Gatwick Airport, the Guardian (p4) reports. However, the amount of oil that could be eventually extracted is still a matter of debate, and talk of a “Dallas-style” home counties oil boom is premature. City AM (p5) adds that investors responded enthusiastically to the news, which caused shares in UK oil firms to “rocket”.Read more
IMF urges stress tests for asset managers
The IMF uses its Global Financial Stability Report to call for increased regulation of the asset management industry, including suggesting that the sector should face stress tests that could mirror those in place for the banking industry (FT,£, p6). The IMF believes the risks for global stability associated with the industry are rising due to the rapid growth in the sector, which now trades securities valuing more than $76 trillion. The Fund notes that there had been a “paradigm shift” among regulators, including the US Securities and Exchange Commission, to consider revising their approach to sector (Telegraph, B4).
Shoppers choosing to pay by phone or car
The ING International Survey on mobile banking, published today finds that nearly a third of people in Britain have used a mobile app to make payments, more than in France, Germany and Australia. The research also found that 46% of people who own a mobile device intend to use a mobile payment app in the next 12 months. (Scotsman p15). The FT (£, p18) looks at the growing trend amongst car manufacturers to turn car dashboards into mobile wallets. Read the BBA’s report “Digital Disruption” on how the UK banking industry is responding to the changing nature of the way we bank.
A two-tier consumer economy
There is widespread coverage of yesterday’s Bank of England Credit Conditions survey which showed demand for mortgages decrease significantly in the first quarter of this year. Comparing the housing market data with other consumer data out this week including the highest level of car sales since 1998, Deloitte’s Chief Economist Ian Stewart suggested the UK is seeing an “unusual two-tier consumer economy”, with housing activity being “crimped by tighter mortgage regulation” and concerns about affordability while high levels of employment is helping drive a recovery in consumer spending (FT, £, p4). The Telegraph (B1) reports that while demand for mortgages is down, the number of mortgages for 90% or more of a property’s value had risen for the first time in nine months. Read the BBA’s Chief Economist, Richard Woolhouse’s thoughts on yesterday’s Bank of England figures.Read more
Wall Street fears over ‘audit the Fed’ proposals
The FT (£, p8) reports on how Wall Street is wary of proposals by leading Republicans, including Presidential candidate Rand Paul, to make the Federal Reserve subject to greater congressional oversight. “We want the Fed to be independent on monetary and [banking] oversight policy and not subject to political pressure either way,” said one senior Wall Street official. Mr Paul has launched a bill that would repeal an existing law that exempts the Fed’s monetary policy from audits by the Government Accountability Office.
Bank worried by UK current account deficit
The Bank of England’s Financial Policy Committee has warned that the UK’s record current account deficit “could, in adverse circumstances, trigger a deterioration in market sentiment towards the United Kingdom… The committee agreed to keep their assessment of this risk under close review and would monitor the maturity and liquidity of the financing of the deficit” (Guardian, p18).
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Labour to ask banks to invest in housing
Last week Ed Miliband announced plans to make banks and building societies invest £5 billion to build 125,000 homes (Times, £). He said that a Labour government will force banks who offer the Help to Buy ISA – announced by Chancellor George Osborne in Budget 2015 – to use the deposits to invest in new housing. Mr Miliband added that the government will underwrite these ISA investments by extending existing government guarantees.
Bonus pool down for UK’s largest banks
The FT (£, p1) reports that bonuses at the UK’s five largest banks fell by £1 billion in 2014 compared to the previous year. The 15% fall in variable remuneration accompanied a reduction in fixed pay and staff numbers. The paper quotes the BBA saying: “Since 2009, the bonus pool has halved and there have been sweeping changes made to the way that banks pay their staff”. The article notes that although some banks have introduced “role-based allowances”, these have “not compensated for the bonus cuts”.
Treasury calls on BoE to consider forex time stamps
The Treasury has asked the Bank of England to consider requiring the use of time stamps for all foreign exchange trades, according to the FT (£, p13). In a letter seen by the paper to BoE deputy governor Minouche Shafik, City Minister Andrea Leadsom wrote: “I recognise that market structure and transparency do play an important role in making markets fair and effective… [but] would be grateful if in the context of this work [Fair and Effective Markets review] you could ensure these concerns [about time stamps] are considered”.
Proponents of time stamping argue that it will increase transparency in the market as customers will be able to see the exchange rate offered at the time of transaction. However, the paper states that the Bank is “luke-warm” about such proposals, with Dr Shafik reportedly saying that no complaints had been raised about time stamps during a private meeting on forex reforms.
KPMG – banks are recovering and reforming
A Paradox of Forces – a report by KPMG on the UK’s five largest banks – finds that they are “reforming” to prepare for a tougher regulatory regime, and that “balance sheets are now in a much healthier state”, writes the Telegraph (B3). However, Bill Michael, head of financial services at KPMG warned: “If further regulation creates too many strictures on non-retail banking, the industry risks losing its global relevance” (Mail, p24).
Southern Europe faces bank capital investigation
Four southern European countries are facing an investigation into whether they are illegally underwriting banks which have increased their capital levels with deferred tax assets, writes the FT (£, p4). These assets are accepted as core capital in Italy, Greece, Spain and Portugal, but are not seen as “high quality” by the European Central Bank. However, competition authorities in Brussels are investigating arrangements which are potentially illegal “state aid”. A withdrawal of state support for deferred tax assets could “dramatically weaken some banks’ capital buffers”, with the four countries holding more than €40 billion worth as core capital, according to ECB data.Read more