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.
BBA credit card statistics for November 2014
Today’s BBA credit card statistics for November show that the proportion of balances incurring no interest rose to 43% – the highest percentage since records began in 1995. BBA Chief Economist Richard Woolhouse said of the numbers: “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.” The statistics also revealed that the number of purchases in November was 6% higher than a year before. You can read the release here.
Deflation for the eurozone increases speculation about QE
According to figures published by Eurostat yesterday, the eurozone fell into deflation for the first time in more than five years as consumer prices fell 0.2% in the year to December. The FT (£, p1, p12) reports that following the announcement, the euro fell for a record ninth successive day as prices are expected to decline further in January, due to falling oil prices. It is widely reported that eurozone deflation will increase the likelihood of the European Central Bank launching a programme of quantitative easing, possibly as early as 22 January when the next ECB policy vote is due.
Merkel confirms she is committed to the UK remaining in the EU
There is widespread coverage of Chancellor Merkel’s visit to London to discuss the agenda of the G7 summit which will be hosted by Germany in June. Speaking at a press conference yesterday the Prime Minister said that he is “convinced” he can “fix the problems” in the UK’s relationship with Europe (BBC Online).The FT (£, p2) reports that the German Chancellor only offered limited support for the UK renegotiating its relationship with the EU, however the Chancellor repeated her assurance to keep Britain in the EU, noting that “where there’s a will there’s a way”. The Times (£, p11) writes that Merkel backed the “necessity” to reform migrant benefits but stopped short of explicitly supporting EU treaty change.
Challenges of implementation of ringfencing by 2019
In its submission to the Prudential Regulation Authority on implementing ring-fencing, the BBA spelt out some of the challenges that will need to be overcome if the changes are to be in force by 2019. The Telegraph (B4) reports that the new rules could mean tens of millions of customers being forced to change sort codes. It quotes the BBA on the level of changes required compared to moving customers from Lloyds to TSB, saying “the scale will be much bigger and will involve several banks, increasing risk, concern about systems integrity and customer impact”.Read more
Influential MEP calls for changes to bank structural reform proposals
Reuters reports that Gunnar Hökmark, the European Parliament’s rapporteur on forthcoming rules to change the structures of larger European banks, has called for the Commission’s proposals to be centred on the overall riskiness of a bank’s trading activities, rather than just its size. He is reported to want recognition that some trading activities are essential to funding the economy and it quotes the report saying that: “This should be reflected in the deliberations around the bank structural reform… It is important to state that there is nothing telling us that trading is more risky than lending, rather the opposite.”
BBA urges speedier action on ring-fencing
In its submission to the Prudential Regulation Authority on implementing ring-fencing, the BBA has spelt out some of the challenges that will need to be overcome if the changes are to be in force by 2019. The Guardian (p28) reports that the changes could cause disruption to payments systems and could lead to millions of customers needing new sort codes. Reuters says that the BBA is calling on regulators to speed up the process as much as possible so that the deadline can be hit. It quotes BBA Executive Director Paul Chisnall saying, “In order to deliver the reforms on time – banks, the regulatory authorities and a number of government agencies will need to pull together to avoid any bottlenecks. In particular we’d like the regulators to try to put in place the new regime as quickly as possible to allow banks to make final decisions about how to structure their businesses.”
You can read the BBA’s full response to the PRA’s consultation paper here.
Bank publishes details of response to financial crisis
There is widespread coverage of the Bank of England’s decision to publish internal papers that detail its response to the financial crisis. The Mail (p8) pulls no punches, criticising what it perceives as “complacency” on the part of the Bank.
The front page of the Guardian reports that the Bank’s governing body – its Court – “was kept in the dark about the scale of the problems at Northern Rock until the central bank was forced into mounting an emergency funding line.”
Credit card spending at highest levels for years
Spending on credit cards reached its highest levels since 2007 in the three months before Christmas according to figures published by the Bank of England yesterday. The number of personal loans also increased and figures on the number of customers defaulting on payments improved as well (Telegraph (B5), Times (£, p2)).
BBA Chief Economist Richard Woolhouse appeared on, BBC Five Live, Radio 2 and Sky News to discuss the survey. In a statement he said: “We have an increasingly mixed lending picture. These figures suggest demand for mortgage lending fell more strongly than at any time for six years, but appetite for personal loans and credit cards is rising consistently. Banks expect the property market to pick up again slightly in the New Year, with lenders offering increasingly competitive offers to attract customers keen to borrow to buy homes and other purchases. There are positive signs on the business lending side too, with a significant increase in demand from medium-sized businesses. The cost of lending is also falling for many businesses. That’s good news for the wider economy as that is the sort of borrowing that can help fuel the recovery.”
The FT (£) reports that German Chancellor Angela Merkel will outline her opposition to a major renegotiation of current EU treaties when she meets David Cameron today. However, the front page of the Times says that Chancellor Merkel is prepared to make changes such as restrictions on welfare as long as they do not threaten the principle of free movement of labour. The Mail (p4) reports that last year, Downing Street dropped proposals to introduce a cap on the number of migrants from the EU after protests from Mrs Merkel 48 hours before he was due to make a major speech on immigration.Read more
BoE to scrutinise banks’ risk models
According to the Times (£, p43), the Bank of England will set out measures to increase the examination of the way banks calculate risk in order “to prevent lenders from gaming an important indicator of their financial health”. The paper reports that the Prudential Regulation Authority will publish a paper before the end of March on how the regulator will work with auditors to study models used by banks which establish levels of capital reserves against potential losses. The article cites two industry sources who suggest that one recommendation will be for more face-to-face meetings between auditors and supervisors so that “supervisors can be informed directly about any concerns with the way risk weighted assets are being set”.
Banks outline plans for ring-fence
The FT (£, p1) reports on a number of banks’ submissions to the Bank of England on the UK’s proposed ring-fencing regime. The paper writes that both Lloyds Banking Group and RBS are “expected to present plans for a ring-fence that was as broad as possible”. Conversely, according to the article HSBC and Barclays plan to place as little as possible within the ring-fence “to boost the size of the remaining operations and lower their cost of funding”. The paper adds that Lloyds’ submission seeks an exemption from its ring-fenced entity having a different board, arguing that “90% of its operations will be inside the new entity, making a separate board unnecessary”.
Hollande calls for a broader scope for FTT
French President François Hollande reiterated his support for a Financial Transaction Tax in an interview yesterday, stating that such a tax should be put in place next year in willing European countries on “all financial products at a low rate”. EU Business writes that this is a change in stance for France, whose “insistence that financial derivatives products important for French banks be excluded from the products to be taxed led to the failure of talks last month between 11 EU states that was supposed to finalise the initiative.” The article suggests that Hollande has come under pressure from his own party to tax all transactions.
Fall in German inflation raises prospect of QE
Germany’s inflation in December fell to 0.1%, its lowest level since October 2009. The Telegraph (B1) reports that this data is likely to put pressure on the ECB to start quantitative easing, with the central bank’s president Mario Draghi telling one German newspaper that the risk of missing the 2% inflation mandate was “higher than six months ago”. The Times (£, p39) reports that analysts believe that data released tomorrow will show a 0.1% contraction in prices in the eurozone for the year to December. Currency markets reacted to this news alongside the possibility of Greece exiting the eurozone, with the euro falling to a nine-year low against the dollar.Read more
City jobs boom
There was an 18% increase in the number of new jobs in the City last year, the Independent reports (p52). Citing research carried out by recruiter Astbury Marsden, the paper says 33,063 new roles were created in 2014. Adam Jackson, director at Astbury Marsden is quoted saying that the increase is down to better conditions in the City which have enabled firms to spend more time thinking about “modest growth”. City AM (p3) adds that the continuing UK recovery and increased business confidence have generated the new roles.
Ringfence plans face BoE scrutiny
This week banks must present the Bank of England with their proposals to insulate their high street operations from their investment banking activities (Guardian, p25). The proposals are intended to reduce the need for taxpayer bailouts if a bank runs into difficulty. It is likely that many banks will be required to create a holding company as well as ringfenced and non-ringfenced entities, each with their own board, the paper writes. The deadline for complying with the rules is 1 January 2019, but the Bank of England has asked to see evidence that work to implement the new regime is well underway.
Individuals under the age of 25 are more than twice as likely to fall for online bank scams than their parents, according to research commissioned by the BBA (Daily Mail). BBC News adds that one in six of those polled said they would transfer money to a “safe account” if they were asked to do so. BBA Head of Campaigns Fiona McEvoy is quoted as saying: “It will surprise many to learn that younger people could be more vulnerable to the tactics of fraudsters than their grandparents. It is important that people of all ages know the language used by these fraudsters so that they can avoid being scammed. A bank would never ask you to transfer funds into a so-called “safe account”, even if there has been a security breach.”
Regulator doubles the number of “early interventions”
The Financial Conduct Authority more than doubled the number of times it stepped in to alter company practices in 2014, and made 31 “early interventions” (FT, £, p15). Such interventions are conducted without a lengthy investigation, and 12 of the 13 interventions last year related to financial crime issues, such as money laundering. The paper adds that the regulator has made good on its pledge to be a more interventionist regulator that its predecessor, the Financial Services Authority.Read more
BBA stats show mortgage approvals have fallen to an 18-month low
The BBA’s high street banking statistics are widely reported this morning. The figures reveal that house purchase approvals in November were 20% lower than a year before. BBC News adds that 36,717 mortgages were approved in November, the lowest for 18 months.
The BBA’s Chief Economist Richard Woolhouse said:
“Today’s figures show quite a sharp chill to the housing market in recent months – with house purchase approvals during November 20% lower than a year before.
“It will be interesting to see what impact the stamp duty changes the Chancellor unveiled in his Autumn Statement will have early in the New Year. They could prove a modest stocking filler for homebuyers and estate agents.
“It’s also striking to see that unsecured borrowing such as personal loans are growing at their fastest rate for six years. This suggests consumers may be feeling more confident which bodes well for a fruitful Christmas for retailers.”
ONS says UK growth unchanged in Q3
Figures released by the Office for National Statistics show that UK growth remained unchanged at 0.7% in the third quarter of 2014. The ONS also revised down its estimates for the five previous quarters, and found that the UK’s current account deficit has widened. The Guardian (p1) says the news will damage Chancellor George Osborne’s hopes of using a strengthening economy in the Conservatives’ general election strategy next May. The FT (£, p1) quotes Phillip Shaw, Investec chief economist, saying that there was “not much seasonal cheer” in the numbers and there was now “no way” the UK economy would grow by 3% overall for 2014, as previously predicted the OBR.
Coco bond issuance doubled in 2014
The FT (£, p26) reports that a “bumper” number of contingent convertible (coco) bonds are set to be issued by European financial institutions following record volumes this year. Coco bond issuance has more than doubled year-on-year from $15.2 billion (£9.7 billion) to $33 billion (£21.2 billion), with most deals occurring in the first half of 2014. The paper quotes Simon McGeary, managing director of capital markets at Citi, who said: “2015 will be similar; there’s still a number of fairly large institutions, such as RBS or BNP Paribas, as well as Dutch and Nordic banks who haven’t issued. You would expect that, where they can, banks will fill their capital gaps with cocos instead of common equity”.Read more
Manipulation of benchmarks to be a criminal offence
Chancellor George Osborne has extended legislation covering LIBOR to seven UK-based fixed income, commodity and currency benchmarks meaning that those found guilty of manipulating them face up to seven years in jail, writes the Telegraph (p27). The Financial Conduct Authority (FCA) will start policing these benchmarks from next April. The FT (£, p26) notes that the FCA wants to make administrators of key benchmarks “responsible for identifying potentially manipulative behaviour, controlling conflicts of interest and implementing robust governance structures”. The Mail (p63) quotes FCA Chief Executive Martin Wheatley saying: “I am determined to ensure that markets work well and preserve the UK’s reputation as a centre of excellence for financial services.”
Regulator to restrict banks’ use of ratings agencies
The Basel Committee on Banking Standards is looking to reduce banks’ use of credit rating agencies to assess risks in their portfolios, reports the FT (£, p15). The regulator wants banks to improve their own assessments in a move aimed at making lenders safer. This comes alongside an initiative to “limit banks’ ability to game the system through their use of internal models to calculate capital”.
Customers complain about banks “every 10 seconds”
Figures from the Robin Hood Tax Campaign suggest that banks have received a complaint from customers every 10 seconds since the financial crisis, writes the Independent (p43). The data reveals that UK banks and building societies have received 19.7 million complaints since 2008, almost 9,000 a day.
A spokesman for the BBA said: “While it is encouraging the number of complaints about banks to the Financial Ombudsman Service has begun to fall, there are clearly still far too many. All banks have hired more staff to deal with the increased numbers of complaints. Furthermore, all of the UK’s high street banks have committed publicly to ensuring a decisive end to any bad practices that encouraged mis-selling. Banks have also overhauled the way frontline staff are paid, rewarding high levels of customer service, not sales volumes. Banks will continue to work with the Ombudsman and regulators to make sure they deliver the service we all expect and deserve.”Read more
House prices falling across the country
Property prices are falling in a third of the UK’s local housing markets, according to a Hometrack study reported on the front page of the FT (£, p1). The newspaper argues that the research shows that the recently introduced Mortgage Market Review regulations have cooled property prices. The study found that home values in a quarter of London postcodes are falling – up from 5% in May. However, prices in Milton Keynes, Aldershot, Stanwell and a minority of other places were still found to be rising.
Forex fines should come from bonus pool, say FCA
The Sunday Telegraph (B1) writes that the Financial Conduct Authority has urged banks fined over foreign exchange trading to fund the penalties from their bonus pots. The five banks that were punished over the scandal have been told that bonuses that do not reflect the fines will be considered “inappropriate”. Banks are trying to use clawback powers to retrieve bonuses paid to the individuals responsible for the wrongdoing, but these are unlikely to cover the full extent of the financial penalties.
The Independent reports that a former member of RBS staff has been arrested in connection with manipulation of the forex market. Meanwhile the Mail (p56) says that RBS will this week issue an update on investigations into foreign currency trading by 50 current or former staff.
Confidence rallies bonus expectations
The BBC covers a survey of 1,500 senior bankers, traders and City workers which said that these executives were on average expecting a 21% rise in their bonuses for this year. The study by the recruitment consultant Astbury Marsden found that 54% of executives said they would move employer if they received a poor bonus – an increase of 9% on the previous year. Respondents cited returning confidence in the City as the explanation for their higher expectations. In the new year the European Union will introduce rules that will limit bankers’ bonuses at 100% of base pay – or 200% with shareholder approval.Read more
Regulators should be more “constructive”
A Government report has said that financial sector regulators should be more “constructive” and involve more senior officials in decisions when launching investigations and levying fines. The FT (£, p22) writes that the Treasury proposals have been developed following a review of City regulators, including the Financial Conduct Authority, and call for a faster system for challenging the decisions made by such bodies in order to make the system “fairer and more transparent”. The Government published 39 recommendations, which included requiring the FCA and the PRA to end the graduated system of discounted fines, offering no more than a 30% reduction for early settlement. The recommendations can be read here. The BBA’s submission to the Government on this issue is available here.
HMT recovers more Icelandic money
The Telegraph (p3) reports that the Government has now recovered 85% of the money used to bail out British consumers following the Icelandic banking collapse. The Treasury announced yesterday that it recovered another £1.4 billion from the estate of Icesave’s parent company Landsbanki, which went bust in 2008. Economic secretary to the Treasury, Andrea Leadsom said: “We remain committed to recovering the full outstanding amount of the British taxpayer’s claim from the Landsbanki estate, and will continue to work hard to make this happen as soon as possible.”
Banks urge SMEs to borrow and grow
As part of the BBA campaign to promote the Better Business Finance initiative, banks have urged SMEs to borrow on the basis that firms that do so are more likely to grow, innovate and export. The SME Finance Monitor survey, conducted by BDRC Continental, found that 49% of businesses who had successfully borrowed money in the last year had innovated, compared with 37% of all SMEs. Richard Woolhouse, chief economist at the BBA said: “The fact that firms who won access to bank finance were 32% more likely to have innovated suggests that if more businesses felt confident about applying for credit, our national productivity rates could receive a significant boost.” (CityAM, p13)
Foreign banks fled Russia
Western banks will continue their retreat from Russia in the New Year, the FT (£, p4) writes. The paper says that syndicated loan volumes fell by 14% during 2014. As well as foreign banks withdrawing, Russia’s part state-owned domestic banks have been brought back into government hands “to be used as a buffer between the state and the grassroots economy”. However, Morgan Stanley analyst Magdalena Stoklasa told the newspaper: “There will probably be a credit crunch. The appetite to lend has already decreased dramatically.”Read more
EU agrees deal on card fees
The EU last night reached an agreement to cap fees to process debit and credit card transactions, writes the FT (£). The new rules place a ceiling of about 0.2% for debit card rates and 0.3% for credit cards. Margrethe Vestager, the EU competition commissioner, said: “This legislation is good for consumers, good for business, and good for Europe. It will lead to lower prices and visibility of costs for consumers.” However, the paper states that banks have argued that consumers will face higher upfront bank fees as a result of the legislation. The draft deal will need to be formally approved by the European Parliament and EU members states early next year.
Government to offload more shares in Lloyds
George Osborne has announced that the Government will reduce its holding in Lloyds Banking Group from 25% to 20% in the run-up to the General Election (FT, £, p4). The Chancellor hopes to raise £3 billion through the sale, although shares will not be sold below 73.6p – the average price that was paid when the Labour government bailed out the bank. The Telegraph (B1) states that the sale – which “came as a surprise to many in the City” – will mean that £10.4 billion of the £20.5 billion of taxpayer funds will have been paid back. The Times (£, p47) notes that the trading plan could see a “few million shares sold every day”.
EU announces tougher rules on research fees
EU regulators have agreed rules on the way broker research is paid for, reports the FT (£, p21). Details of the rules will be announced tomorrow. The Financial Conduct Authority has previously stated that separating the costs of research and dealing commissions would encourage greater competition and transparency over the price of research. However, the article cites an Extel poll from last month which suggests that preventing banks from combining fees would “affect the ability of small-cap companies to access the capital markets”.
Fed hints at rate rise
The Federal Reserve has signalled that it expects to tighten monetary policy in mid-2015, reports the FT (£, p1). The rate setting committee dropped its forecast that rates would remain low “for a considerable time”, but added that it would be “patient” in judging when to start the rise. In addition, the Federal Open Market Committee changed its forecast of rate rises in 2015 and 2016, expecting rates of between 1% and 1.25% by the end of 2015, rather than 1.25% and 1.5%. As a result, the Fed now expects interest rates of 2.5% by the end of 2016. However, the Independent (p56) writes that the announcement left “financial markets scrambling to make sense of its meaning”.Read more
Bank of England warning on emerging markets
Mark Carney has vowed to put banks’ emerging market exposures under scrutiny in Britain’s next round of stress tests (FT, £, p17). Dr Carney warned that new financial stability risks were brewing overseas, and there was a danger of a “sharper adjustment” in emerging nations that could rebound into core markets. In a press conference yesterday, he said: “You can expect we will look towards some of those global risks much more closely – they will figure more prominently.”
Agreement reached on Fourth Anti Money Laundering Directive
An informal agreement has been reached on the EU’s fourth Anti-Money Laundering Directiveon the prevention of the use of the financial system for money laundering and terrorist financing. The directive will oblige EU member states to maintain central registers listing information on the ultimate beneficial owners of corporate and other legal entities, as well as trusts. A BBA spokesman said: “It is important that there is consistency across the EU when it comes to tackling money laundering so we are pleased that politicians have agreed this important directive. It is crucial that the proposed rules allow for a proportionate, risk-based approach when it comes to complex matters like due diligence, handling customer data and examining the customer relationship. We will work with policy makers and regulators to implement these rules in a way that balances good customer service as well as a focus on reducing financial crime.”
Inflation falls again
Inflation fell to 1% in November as measured by annual growth in the Consumer Price Index, City AM reports (p2). Figures released by the Office for National Statistics yesterday revealed that inflation now stands at a 12-year low. The paper adds that the Governor of the Bank of England, Mark Carney, believes that inflation is likely to fall below 1% in the first six months of 2015. The Independent (p9) says the fall has given shoppers “an early Christmas present” as falling oil prices and supermarket price wars have pushed the rate down.
Russia faces financial crisis
The rouble fell by more than 11% yesterday after a failed intervention by the Russian central bank (FT, £, p1). As a result, investors piled into haven assets, pushing German bond yields to a record low. The paper quotes Sergey Shvetsov, deputy governor of the central bank, saying: “I couldn’t imagine even a year ago that such a thing would happen – even in my worst nightmares.” Yesterday Russian shoppers rushed to buy goods before the currency lost more value, while some banks ran short of cash as customers stocked up on dollars and euros, the paper writes.Read more