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.
QE announcement expected
The European Central Bank is this morning expect to start buying €50 billion (£38 billion) of government bonds a month for up to two years, in a landmark stimulus package to beat deflation in the eurozone (FT, £, p1). Although a decision is yet to be made, it is widely expected that the ECB will embark on a large scale quantitative easing programme for the first time. The FT adds that monthly purchases of €50 billion would be “at the higher end” of market expectations and imply that the ECB will buy up to €600 billion (£460 billion) of government bonds. BBC News says the strategy appears to have worked in the US and the UK. Japan also has had a sizeable bond buying programme. An announcement is expected to be made later today. The Guardian (p24) quotes Italian prime minister Matteo Renzi saying that the ECB could “help Europe give a message of a new economic direction”.
Read BBA Chief Economist Richard Woolhouse’s analysis of the ECB’s likely announcement today.
“Banks must move on,” World Economic Forum hears
Speaking at the World Economic Forum in Davos, the world’s leading bankers have said that banks must stop looking back at the financial crisis and move on, (Telegraph, B5). The paper says heads of some of the world’s largest banks – including HSBC, Deutsche Bank and Bank of America – yesterday agreed that the sector needs to be forward-looking so that it can continue to grow. The Times (£, p49) adds that the bankers have warned that financial regulation is overshot and is causing “more harm than good”. It quotes HSBC chairman Douglas Flint, saying there is a “disconnect between economic policy and regulation”.
Wages begin to rise as unemployment falls further
Unemployment has fallen to its lower level since 2008 and wage growth is more than three times higher than inflation (Times, £, p4). Figures released by the Office for National Statistics yesterday revealed that the number of people out of work in Britain fell by 58,000 to 1.9 million in the three months to November 2014. Average weekly earnings, excluding bonuses, rose by 1.8%. However, the paper warns that there were signs of a slow-down in the recovery in the latest labour market report. In addition, the minutes of the latest Monetary Policy Committee meeting released yesterday show a unanimous 9-0 decision to keep rates unchanged, and that the two dissenting voices who were voting for a rate rise have fallen back into line. This further delays the likely timing of the first rise.Read more
Concerns grow ahead of ECB announcement
Ahead of the European Central Bank’s expected announcement on quantitative easing tomorrow investors have been buying up peripheral eurozone debt, with countries such as Spain taking advantage by making large bond sales at record low rates (FT, £, p1). The policy still remains contentious however, as a rift between Germany and the rest of the eurozone grows over whether the bonds that have been purchased will remain with national central banks or not. In the Guardian (p19) Larry Elliot warns: “Having ramped up expectations, there is now a danger that the long-awaited plan proves a damp squib. Markets want Draghi to put a figure on the size of his programme (preferably at least €1 trillion) and they want to know exactly how it will be operated. Given the length of time that has elapsed since Draghi’s “whatever it takes” speech, they will be unhappy with anything less.” The Times (£, p35) reports that former Bank of England Governor Mervyn King is sceptical that it will be beneficial. He said: “We have had the biggest monetary stimulus the world must have ever seen, and we still have not solved the problem of weak demand. The idea that monetary stimulus after six years . . . is the answer doesn’t seem [right] to me”.
William White, from the OECD, is extremely critical of the move in the Telegraph (B1) warning: “We are in a world that is dangerously unanchored. We’re seeing true currency wars and everybody is doing it, and I have no idea where this is going to end…We are holding a tiger by the tail”.
FCA criticises rates for savers
The Financial Conduct Authority’s (FCA) criticism of the rates on offer to savers is picked up widely in this morning’s papers. The BBC reports that the FCA has stopped short of banning bonus or teaser rates, but has called for the introduction of greater transparency including a “switching box” that will allow customers to easily compare their saving account with the best on the market.
A spokesman for the BBA said: “These have been frustrating years for savers. More than five years of the Bank of England’s base rate at a record low has fostered a low interest rate environment and that can be hard. Banks have made it easier for customers to find the right savings product for them. The electronic Cash ISA Transfer Service has helped to significantly reduce switching times, interest rate disclosure on savings accounts has improved and a number of providers have recently streamlined their savings ranges to help customers to navigate the market. The FCA’s report identifies a number of proposed remedies which have the potential to make life even easier for customers and we will consider these carefully. We always encourage customers to review their savings regularly and to shop around for a better deal.”Read more
Bank issuance of debt capital hits a record high
Banks’ issuance of debt capital is at a record high as lenders look to shore up their balance sheets, reports the FT (£, p30). Debt issuance by global banks more than doubled to $274.5 billion (£182 billion), prompted by Basel III rules which have raised the level of capital that banks are required to hold. The paper states that debt capital volumes are set to remain high in the coming years “while regulators debate whether to increase the minimum loss-absorbing capital level for the biggest global banks.”
Tyrie warns against “grandfathering”
Treasury Select Committee Chair Andrew Tyrie MP has warned regulators that the new accountability regime must apply to all senior bankers, writes the Telegraph (B5). The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have proposed “grandfathering” existing senior staff into the new regime, meaning that they would be exempt from background checks. However, in a letter to both regulators Mr Tyrie said that the “box-ticking, back-covering culture” must not be able to continue, and that “grandfathering could increase that risk”. The FCA responded that it would take his comments “into consideration” but added that it had not published its final plans for moving senior staff onto the new regime (Mail, p66).
Europe prepares for QE
Share prices across the eurozone reached a seven-year high as investors bet on the European Central Bank (ECB) announcing a quantitative easing (QE) programme this week, reports the Telegraph (B1). This came as French president François Hollande told business leaders at the Élysée Palace that “the ECB will take the decision to buy sovereign debt, which will provide significant liquidity to the European economy and create a movement that is favourable to growth ” (Guardian, p24). However, the FT (£, p6) reports that German newspaper Bild warned readers that the euro could be “dramatically devalued” if quantitative easing goes ahead.
The Times (£, p37) writes that the Danish central bank cut its interest rates to -0.2%, their equal lowest level, in a bid to “battle speculation that Denmark could become the next country to abandon its euro peg”. Denmark’s economy minister Morten Østergaard insisted that the euro peg was there to stay: “It doesn’t make any sense to compare the short-term, one-sided Swiss currency peg with the long-term Danish fixed-rate regime”.
IMF cuts global growth forecast
The Times (£, p39) reports that the International Monetary Fund (IMF) has cut its global forecast for 2015 from 3.8% to 3.5%. Despite falling oil prices, the IMF said that effect would be outweighed by weak performances in China, Japan and the eurozone. The pace of economic growth in the UK was second only to the US, but even this was downgraded from 2.5% to 2.4% in 2016, with growth remaining at 2.7% this year. The Telegraph (B4) points to comments made last week by IMF managing director Christine Lagarde. She said that the UK was leading the European growth league “in a very eloquent and convincing way”.Read more
US banks attack Obama’s new bank tax
The FT (£) splashes on the news that American banks have attacked President Obama’s plans to impose a new levy on the US banking industry. The proposals would see the introduction of a fee of 0.07% on the liabilities of 100 or so financial groups with more than $50 billion in assets. James Ballentine, from the American Bankers Association said: “This really comes at a difficult time for an industry that is moving the economy forward. To impose a fee, a flat tax, is certainly not warranted, and I hope Congress will reject this idea.” Along with other taxes on the wealthy it would be used to finance measures aimed at middle America, such as tax benefits for childcare and college education.
Banks raise concerns over virtual currencies
The Sunday Telegraph (B1) reported on concerns raised by the banking industry over the difficulties that virtual currencies cause for banks when trying to comply with anti-money laundering regulations. It notes that banks have to demonstrate that transactions are legitimate and are not supporting criminal or terrorist activity, which is difficult when currencies such as Bitcoin are anonymous. The article quotes BBA Chief Executive Anthony Browne saying: “The reality is that if terrorists and criminals harness these unregulated currencies they will be far harder for the law enforcement and intelligence agencies to hunt down.”
Juncker: “People shouldn’t stay together if the conditions aren’t the same as when things started”
EU Commission president Jean-Claude Juncker has compared the EU’s relationship with the UK to a failing romance. The Telegraph (p4) reports that he told an audience in Paris that: “People shouldn’t stay together if the conditions aren’t the same as when things started. It’s easy to fall in love and more difficult to stay together. I am for the respect of member states, respect between the institutions and member states. I am against all forms of grovelling.”Read more
US and UK cyber-attack simulation plan
During his tour to Washington, UK Prime Minister David Cameron has announced that US and UK security forces will carry out mock cyber-attacks on the Bank of England and commercial banks on Wall Street and the City. He said: “The joint exercises and training of our next generation of cyber experts will help to ensure that we have the capability we need to protect critical sectors… from emerging threats.” (FT, £, p2)
Death of universal banking?
The FT (£, p17) looks at the retreat of the universal banking model as banks look to make their business models leaner. The article states: “the game is also rigged by regulators, who are increasingly worried about the consequences of a megabank blow-up. The more capital they demand of bigger banks – and the US is not necessarily finished even now – the harder those institutions have to work to compete with their smaller rivals”. It quotes Barclays Chief Executive Anthony Jenkins saying that “the universal banking model is dead”.
Swiss currency chaos
The Times (£) reports that the Swiss National Bank’s decision to move the Swiss franc’s peg to the euro caused chaos in the currency markets yesterday with the currency soaring 30% against the euro and the Swiss stock market tumbling by 9%. The move has led to some commentators speculating that the central bank might need to be bailed out by the Swiss government (BBC).Read more
Osborne: Government “close” to recouping RBS investment
George Osborne has said that a decision will be made soon after the May general election about the timing of selling off the taxpayer’s 81% stake in RBS, the Daily Mail (p74) reports. The Chancellor said “huge” progress has been made with “derisking” and “stabilising” the lender since the £46 billon of state funding was injected into the bank at the height of the financial crisis more than six years ago. Mr Osborne said the bank is “close to the point” at which a share sale could begin, suggesting that a move could be made “early” in the next parliament. The Government has already raised £7.4 billion for the public finances by reducing its stake in Lloyds Banking Group from 39% to 25%.
Mr Osborne’s speech also raised the prospect of a new fiscal rule, obliging future governments to run budget surpluses in “normal” times.
Dimon warns that smaller banks may have less influence
JP Morgan Chase’s chief executive has warned that breaking up US banks would make it harder for the West to compete with large Chinese competitors, the FT (£, p16) reports. Jamie Dimon said: “America has been the leader in global capital markets for 50, 100 years. It’s part of the reason the country is so strong. I would not want the next JP Morgan Chase to be a Chinese company.” Although JP Morgan Chase was announcing its best year of profits, Mr Dimon still faced questions about the bank’s future structure after the Federal Reserve last month said that it wanted the bank to hold more capital because of its size and complexity.
Branches are now a “remote” way to bank, says Atom’s founder
Anthony Thomson, the entrepreneur behind the new digital-only start-up Atom Bank, has described the move to mobile banking as “absolute” and “seismic”. Speaking to the FT (£, p21), Mr Thompson said that Atom will have no branches, adding that to create such a network would be similar to “BT putting phone kiosks in the street”. The article cites figures from the BBA’s Way We Bank Now work showing that mobile banking transactions “rocketed” from 9.1 million to 18.4 milloin a week between 2012 and 2013. The FT also spoke with the chief executive of Hampden & Co, a new private bank that will provide a strong digital offering married with traditional services.Read more
ECB bond-buying programme ruled legal
The European Court of Justice has this morning ruled that the European Central Bank’s bond-buying programme is legal, provided certain conditions are met (Guardian). This includes ensuring that the Bank does not provide “direct” financial assistance when it buys debt issued by a eurozone country. The Court was asked to rule whether President Mario Draghi’s proposals to buy government bonds in unlimited quantities overstepped the Bank’s mandate (FT, £, p7).
Governor warns of deflation
The Governor of the Bank of England, Mark Carney, has warned that the UK economy is in danger of falling into deflation (Telegraph, B1). Yesterday’s data revealed that price growth fell from 1% to 0.5%, a 14-year low. Dr Carney is quoted by the Telegraph as saying that inflation is “likely to drift a little lower in subsequent months” and deflation in the UK is “possible”. The Guardian (p3) adds that although falls in oil prices and the weakness of producer prices mean it is “quite conceivable” that inflation will soon turn negative, the risk of a prolonged period of deflation is “relatively slim”. Read the BBA’s Chief Economist Richard Woolhouse’s analysis on the figures here.
Global growth forecast revised
The World Bank has cut its global growth forecast and warned that the United States cannot power the global economy alone (BBC News). The BBC quotes the Bank’s Chief Economist, Kaushik Basu, as saying: “The global economy is running on a single engine…The American one. This does not make for a rosy outlook.” The World Bank has predicted global growth of 3% this year and 3.3% in 2016, below its June 2014 prediction of 3.4% and 3.5% respectively. Problems in the eurozone and Japan were the reason why the Bank says it was forced to revise down its forecast, as it warned of the risk of the eurozone sliding into permanent stagnation (Guardian, p21).Read more
US banks voice concern over clearing houses
US banks have urged the US Treasury to take action after concerns were raised that should a clearing house fail, it could cause a financial crisis. In a letter to US Treasury secretary Jack Lew – seen by the FT (£, p18) – bank trade group The Clearing House Association argues that risks posed by clearing houses have not been adequately addressed. Areas of concern raised by the group include “limiting liability to banks in the event of a collapse, forcing the clearing houses to have more “skin in the game” by injecting their own capital, increasing transparency, specifying what collateral is used and setting resolution plans for what happens in the event of a CCP collapsing.” In response, the largest clearing houses have pointed to tougher new rules and larger capital buffers in the US and Europe, and argue that their “role in the market is to neutralise risk while banks are risk takers”.
Mortgage rates at record lows
Key mortgage rates ended 2014 at their lowest level in 20 years due to an “intensifying price war amongst lenders”, writes the Times (£, p6). According to Bank of England data, the average two-year fixed mortgage fell to 2.08% in December, down from 2.4% a year earlier. The Guardian (p23) states that growing competition is due to the expectation that interest rates will not rise soon, and points to recent products launched by banks including the lowest ever five-year and ten-year fixed-rate loans. Indeed, the Mail (p19) suggests that “now could be one of the best times in recent history to lock into a fixed-rate home loan”.
Inflation falls below target
ONS data published this morning reveals that inflation fell to 0.5% in December 2014, the joint lowest since May 2000. The Telegraph quotes the ONS which states that the slowdown in price rises “came from the December 2013 gas and electricity price rises falling out of the calculation and the continuing drop in motor fuel prices.” This is also the first time that the Bank of England has missed its inflation target of 2% on the downside since it was given control of interest rates. However, Mark Carney will only write to the Chancellor explaining why the target was missed once the Monetary Policy Committee has met on 5 February, with the letter being published alongside the minutes of the meeting on 18 February.Read more
Bonus pools set to be smaller but still likely to cause political headache
The FT (£, p17) reports that bonus pools are set to be smaller on both sides of the Atlantic this year as trading profits are down and some banks deduct conduct fines from the pool. “The trend is that compensation is trending downwards rather than upwards,” said Mike Karp, chief executive of Options Group, a recruitment company. The article quotes from the Office for National Statistics which said total UK financial sector bonuses last year were down about a quarter from their peak in 2007.
In a separate article (FT, £, p2) the paper predicts that bank bonuses could be a contentious issue in the run up to the General Election. It quotes Labour’s Shadow Financial Secretary to the Treasury Cathy Jamieson saying: “Despite the scandals that have emerged over the last year, it looks set to be another bumper round of bank bonuses. This underlines Labour’s determination to repeat the tax on bank bonuses in order to fund a paid starter job for every young person out of work for over a year. We also want wider reform of the banking industry to make it more competitive for the long-term.” The article notes that Shadow Chancellor Ed Balls is unlikely to single any one banker out for personal criticism over their bonus payments.
ECB sets tough new capital targets
The European Central Bank has set tough new capital targets for eurozone banks in recent weeks who have until the end of this week to appeal against the levels they have been set. The FT (£, p18) speculates that this could lead to some eurozone banks to launch a new wave of capital raising. The article quotes analysts from Citigroup saying: “Growing euroscepticism remains the key tail risk in a year of multiple elections… and will likely make for a volatile ride”.
Billions in lost bank accounts
The Sunday Times (£, p1) Money section looked at the billions of pounds stowed in “forgotten” accounts, pensions and shares. The paper includes a BBA estimate of £850 million that could be sat in current and savings accounts and quotes a BBA spokesman saying: “Provided the customer can give enough information to prove they are the rightful owner of the account, and the account is dormant (rather than closed by the customer), they can reclaim all funds including any interest.”Read more
Record numbers borrowing on interest-free cards
The Mail (p13) and CityAM (p10) reported the BBA’s credit card statistics, which showed that interest-free credit card borrowing hit a record high of 43%. The number of card purchases in November was also up 6% on the same month last year. In the Daily Mirror (p61), Tricia Philips also reports the figures and offers some advice to borrowers: “Work out how much you can afford each month, find a card with the number of months you’ll need to clear your debt and set-up a standing order”.
Commenting on the BBA’s Credit Card Statistics, the BBA’s Chief Economist Richard Woolhouse said: “Consumer spending looks well set for a strong year. It’s very interesting to see a record 43% of credit card balances incurred no fees in November – that’s the highest proportion since records began almost 20 years ago. Attractive financial deals are even more appealing when you feel more optimistic about your economic future. With unemployment continuing to fall, many of us seem to believe 2015 will be a year where we can spend with greater confidence – that’s good news for the wider economy.”
Eight things your bank would never ask you
The Telegraph uses the “Eight things your bank would never ask you to do (but a fraudster might)” from the BBA’s Know Fraud, No Fraud campaign to raise awareness of the tactics of scammers amongst readers. The article advises: “…their tricks normally involve pretending to be your bank, whether on the phone or via email. After convincing you that they are genuine, they ask you to carry out various plausible-sounding actions that will result in your account being raided. Here are eight things that fraudsters might ask you to do – but your bank never will.”
China at risk of credit crunch
Bank of America Merrill Lynch (BAML) has warned its clients that China could be facing a financial crisis this year. A report published by the bank referred to a heightened debt default risk and “cautioned investors to focus on the risks of deflation and renminbi devaluation (CityAM, p2). According to the Telegraph (B1) the BAML paper says that the country’s highly-leveraged companies “cannot safely withstand President Xi Jinping’s drive to stamp out moral hazard and wean the country off excess credit”. The article says that loans in China have grown by around 100% of GDP in the last five years. This is twice the rate of growth in Japan over a comparable period before their crash in 1990 and in the US before the Lehman crisis in 2008.
Santander to increase capital
The eurozone’s biggest bank, Santander, has announced that it will be raising €7.5 billion (£5.9 billion) from a share sale. The moves come as chairman of four months, Ana Botin, looks to “finance organic growth” in a departure from the thinking of her late father who resisted pressure from investors to raise capital. According to the FT (£, p17), analysts have said that Ms Botin is putting the interests of shareholders ahead of those of her family, “whose 2% shareholding could be diluted”. Santander shares rose by 3% before the sale announcement. The paper’s Lex column (p16) adds that the bank will also be shifting its dividend payments policy to cash in addition to scrip, meaning that “almost €2 billion (£1.6 billion) of this increase will quickly end up in shareholders’ hands as cash.”Read more