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.
“Living wills” could mean higher cash reserves
US and European banks may be forced to increase their cash reserves by tens of billions of dollars in order to have their “living wills” approved by regulators, according to FT sources (£, p15). In August, US regulators rejected the wills – which identify how a failing institution could be wound down – of 11 banks, and called for improvements ahead of the 2015 submissions. One reason for this failure was that the regulators told banks not to assume access to the Federal Reserve in a liquidity crunch. In a second article in the FT (£, p18), president of the Federal Reserve of Richmond Jeffrey Lacker told the paper: “It doesn’t seem to me to be healthy, for financial institutions to expect their problems will be solved through central bank credit.” Without this support, people familiar with the living wills process have said that “most banks think they would have to set aside billions of dollars in cash as a cushion”.
ECB takes on role of supervisor
As of today, the European Central Bank will assume responsibility for monitoring the health of the eurozone’s biggest banks through the Single Supervisory Mechanism. Bloomberg writes that the supervisory regime will “set about trying to blend 18 sets of national supervisory habits into pan-European consistency, and prod banks to take more precautions against crises”. Head of the Bank Danièle Nouy told the European Parliament’s ECON Committee on Monday that the Bank needs to keep a close watch on the shadow banking sector as “the more rigorous the regulatory system, the more attractive shadow banking looks” (Reuters).
Virgin Money to revive flotation plans
Sky News reports that Virgin Money is poised to set out a new timetable for its IPO this week. The lender delayed plans for a flotation in October due to stock market volatility, the threat of deflation and concerns about global economic growth. However, Sky News suggests the recovery in bank share prices since the PRA’s leverage ratio announcement last Friday has led Virgin bosses to mount a further attempt at listing. CityAM (p1) states that the challenger bank will focus on its current branch network and its online and broker-led sales. Read the BBA’s Way We Bank Now work here.Read more
BBA calls for changes to Senior Managers Regime proposals
Sky News reported that the BBA and AFME have called for changes to the proposed new Senior Managers Regime as it could create a disproportionate burden for some smaller banks. The submission also warns that new rules for non-executive directors could undermine their independence by making them too “hands on”. Read the full joint response here.
BBA Executive Director Simon Hills said: “It is right and proper that bankers with the most senior responsibilities should be held accountable for their actions. This is important both for the health of the banks but also in restoring public trust in the financial sector. We believe that the proposals as drafted could undermine the independence of non-executive directors by making them too ‘hands on’ which could reduce their ability to provide critical advice to bank boards and propose that guidance on the role of the non-executive director would help avoid this. It is also important that supervisors’ expectations of senior managers should reflect the business model of the bank – it would be disproportionate to apply the requirements in the same way to both the directors of a challenger bank and to the directors of a large internationally active bank.”
Bank shares rise on Friday after leverage review
The Bank of England announced its proposals for the UK leverage ratio on Friday. Its Financial Policy Committee announced that the biggest UK banks would have to hold capital of up to 4.05% of their assets from 2019 onwards, up from 3% now. That could be increased in boom times by an extra buffer of another 0.9%. The Weekend FT (£, p3) quoted the BBA welcoming the announcement saying that it “balances safety with the need to keep lending affordable for businesses and individuals”. Shares in a number of banks rose sharply following the Bank’s statement.
Browne on changes in banking
In an interview with the Scotsman, BBA Chief Executive Anthony Browne talks about how UK banks have changed since the crisis: “We don’t have these highly leveraged [debt-laden] businesses. They are a lot more boring than they were, and that is good because banks have a role to play in society. But we don’t want the stability of the graveyard where banks cannot do anything.”
Business Bank backing alternative lenders
The Sunday Times (£, p10) ran an interview with Business Secretary Vince Cable, about the British Business Bank and the alternative lenders it is looking to support. He says: “I used to be highly critical in general of the banks, of the culture, of the interest rate mis-selling, of the past. There are some positive things happening. What’s inhibiting the banks is not bloody-mindedness, but the fact that they have risk ratios inherited as a result of the Basel regulation.”Read more
Announcement on leverage ratio
Bank of England is expected to announce the results of its review of the leverage ratio today. The Telegraph (B1) reports that the Bank’s Financial Policy Committee could increase the safety net to 4% or 5% for “systematically important” banks – higher than the 3% proposed by the Basel Committee on Banking Supervision, the international watchdog. The Times (£, p53) said that these measures could result in banks and building societies granting fewer mortgages or increasing interest rates for homeowners. There is also speculation that these moves could encourage risky lending. This is because, unlike current bank buffers, leverage ratios are not adjusted for the safety of a bank’s loans. The Bank has admitted that building societies, which are more exposed to mortgages, could disproportionately suffer.
Commenting on the impact of such an announcement, chief executive of Secure Trust Bank, Paul Lynam told the Times: “The reality of this change is that banks will either have to accept lower returns on equity, or the cost of financial products, such as mortgages, will have to rise. I think the latter is more likely than the former.”
The Telegraph gives closer examination of what to expect from the Bank’s announcement here.
Here the BBA’s Simon Hills examines the damage a UK leverage ratio could do to the sector.
Growth of shadow banking
CityAM (p1) reports figures from the Financial Stability Board (FSB) that show shadow banking grew by $5 trillion (£3.1 trillion) worldwide last year and took over from banks as the main source of lending. The shadow banking sector includes a wide range of institutions which offer bank-like services, including money market funds, finance companies and real estate investment funds. According to the article the figures could be even higher as they don’t take into account offshore hedgefunds. Over the same period the banking sector’s assets stayed flat. The FSB welcomed the boost to lending, but earlier in the month the International Monetary Fund warned that shadow banking could be a potential source of risk to the financial system. The FT (£, p22) says that the strongest growth from a large economy came from China, which is now home to the third biggest shadow banking sector after the US and the UK. The article suggests that the reason for such growth in shadow banking globally is because the banking sector is being shrunk by regulation.
Yorkshire and Clydesdale could float
The Times (£, p48) writes that the National Australia Bank (NAB) could be making its exit from the UK as it looks to float subsidiaries Yorkshire Bank and Clydesdale Bank. In the wake of PPI and IRHP losses, NAB has worked to build a UK banking business but says that it is considering “a range of options” for the UK division. Bank chief executive Andrew Thornburn told Reuters: “We have an intention to exit the UK”, saying that the bank’s focus would be New Zealand. The FT reports that the NAB has already begun offloading non-core business, including the partial sale of a £625 million non-performing commercial property loan book in the UK.Read more
The Fed announces the end of QE
All the main papers reports that on Wednesday the Federal Reserve voted 9-1 to stop itslong running bond-purchase program at the end of October. As the FT reports (£, p1) in a marked change of language the Fed highlighted an improvement in the US labour market, dropping its previous view that there was significant “underutilisation” of labour resources. The Fed kept its forecast of low rates for a “considerable time” but made clear that the clock starts ticking now for a future rate rise. (Times, £, p48), (WSJ, £, p1) (Guardian, p26)
Lord Hill says that the EU should not introduce a unilateral financial transaction tax
Lord Hill, Britain’s next European Commissioner has said a financial transaction tax should only be introduced at a global level, if at all. He added that this is not a view shared by many in the EU. Read the joint BBA, CBI and EEF letter on the proposed financial transaction tax here. (Telegraph, £, B1)
September mortgage approvals fall
The Bank of England Bankstats published yesterday reveal that UK mortgage approvals dropped to 61,267 in September, a 14 month low, adding to evidence that the housing market is cooling. The Bank of England data also showed the average interest rate on outstanding mortgages was 2 basis points down, to 3.2pc in September (Telegraph, £, B5). Commenting in the Daily Mail (p79) Richard Woolhouse, chief economist at the BBA, said: “We are now experiencing a steadier housing market, which is no bad thing given previous concern about the pace of property price rises.”Read more
Cable steps in on branch closures
Following Lloyds Banking Group’s announcement yesterday that it was to close 150 branches, Business Secretary Vince Cable said that he would write to the large retail banks asking them to recommit to their “last branch in town” pledge. Mr Cable said: “As banks continue to modernise we must ensure that people in rural and smaller communities in particular continue to have access to the banking services they need” (Times, £, p39). The Business Secretary also called for the banking industry and the Post Office to work together to “ensure a long-term solution to financial access can be found using existing networks”, reports the Guardian (p21).
BBA Executive Director Eric Leenders appeared on the BBC 6 O’Clock (03.14), News at Ten and ITV News to discuss how “the technological revolution that is changing all of our lives” is impacting the way we bank. The BBC and ITV both used BBA figures that showed the growth in online and mobile banking. The FT (£, p1) also cites BBA figures which show that UK bank customers make almost £1 billion worth of mobile and internet transactions per day, whilst footfall in branches has fallen by 10% per year.
Banks to help those with mortgage shortfalls
The Telegraph (p1) reports that several major banks will write to elderly home owners to warn them if they face a shortfall once their mortgage ends. A number of lenders are in discussions to offer “lifetime mortgages”, where customers can continue to repay just the interest until their death. Ros Altmann, the Government’s adviser on older people said that “lenders are trying to keep people in their homes, rather than repossess them”. The paper states that there are around 130,000 interest-only mortgages due to expire each year up to 2020, with about half facing an average shortfall of £71,000.
Rates may stay lower for longer, warns Deputy Govenor
Sir Jon Cunliffe has signalled that interest rates may stay low for the foreseeable future, writes the Times (£, p41). Speaking at the Cambridge Society for Economic Pluralism, the Deputy Governor for Financial Stability said that weak pay growth and a stuttering global economy has caused him to rethink how long rates should stay at record low levels. Sir Jon added that understanding how employment has risen without causing inflationary pressures is “now key to deciding policy”. The Telegraph (B4) notes his suggestion that there has been little real wage resistance as workers believe that “pre-crisis pay levels are no longer achievable”.Read more
Fair and Effective Markets Review consultation published
The Bank of England published the consultation document for the Fair and Effective Markets Review last night. The consultation asks whether there is a need to strengthen criminal sanctions in fixed interest, currency and commodity markets, as well as to introduce punishments such as temporarily suspending companies’ or individuals’ permissions to trade in certain markets (FT, £, p1).
The paper quotes Minouche Shafik, Deputy Governor for Markets and Banking, as saying: “The first act of the review was to identify seven additional benchmarks which need to come into the regulatory perimeters. So we will look at regulatory options if we have to. But a big part of the problem really can be solved through market-led and firm-led solutions and we are keen to work with the industry to find these.” The Telegraph (B1) quotes Chancellor George Osborne as saying that he wanted the work to preserve “the UK’s position as the global financial centre for many of these markets.”
Responding, BBA Policy Director Andrew Rogan said: “This review will be crucial in helping to raise standards and improve trading practices. Trust is essential to markets which is why the industry has worked hard with the authorities to put in place reforms in recent years. Any further moves that help improve confidence in London as a place to do business will be welcomed. Our ambition is for markets in London to be famous for fair dealing and integrity and our members will work with the review to try to achieve that.”
Lloyds unveils three-year strategy
Lloyds Bank has announced its new three-year strategy in a plan that will see many of its operations automated. The Telegraph says the bank is targeting a £1 billion-a-year saving by the end of 2017, and will also put £1 billion into digital technology. The three-year plan will see an extra £30bn of lending put into the economy. Lloyds Bank Chief Executive António Horta-Osório said: “This is a highly competitive market and customers’ behaviour are changing. Increasingly our customers want to access our services in many different ways, via branches, via digital or via mobile.” Mr Horta-Osório said regrettably this would require 9,000 job cuts as the business was “digitised.”
Start-ups seek banking licences
The FT (£, p4) reports that Nazzim Ishaque’s Lintel Bank is among a number of start-ups seeking a banking licence from the Prudential Regulation Authority (PRA). Mr Ishaque, a former IT expert, plans to use online, phone services, a few branches and “cutting edge technology” to offer current accounts, mortgages and loans for small and medium-sized businesses. The paper adds that regulators have eased requirements for new banks, and five new banks were authorised by the PRA in the year following rule changes introduced in March 2013.
Click here for the BBA’s report “Promoting Competition in the UK Banking Industry.”
Price of CoCos expected to rise following stress tests
The Wall Street Journal (p23) says contingent capital bonds, or CoCos, were one of the winners of Sunday’s ECB stress tests, as the price of the bond rose yesterday as analysts predict the stress test result could spark a revival in issuance. Jeremy Smouha, from asset manager GAM said: “The increased transparency and comparability of banks’ balance sheets across Europe is definitely a positive sign longer-term,” said. With banks overall becoming safer, their junior debt [including CoCos] will also become safer”.
Prime Minister toughens stance on Brussels bill
David Cameron is bracing himself for a “bruising showdown” with Brussels after hardening his stance in a budget row with the EU, the Guardian writes (p9). Making a statement to the House of Commons yesterday, Mr Cameron said: “Britain will not be paying an extra €2 billion (£1.7 billion) to anyone on 1 December, and we reject this scale of payment. We will be challenging this in every way possible”.Read more
UK banks pass ECB stress tests
Shares in Banca Monte dei Paschi di Siena have been suspended this morning following the announcement of the results of the European Central Bank’s (ECB) Asset Quality Review (AQR) yesterday. It found that European banks need to adjust the value of their assets by €48 billion (£38 billion). The ECB will now require the 130 lenders who took part in the exercise to adjust the value of their assets in their accounts or prudential requirements.
The FT (£, p1) reports that nine Italian banks were among the 25 euro area banks – including three in Greece, three in Cyprus and two in Belgium – that failed the ECB health check. Of the 25 lenders that failed, the ECB said 13 still needed to address capital shortfalls even after taking account of actions they had taken since December 2013 – which was the cut-off point for the initial capital test. Four of these were Italian.
Harry Wilson welcomes the results in the Times (£, p47), “every British bank that took part passed and only Lloyds looked close to being troubled by the doomsday scenario employed to measure a lender’s ability to survive. In the case of Lloyds, a severe fall in the value of its mortgage-lending book resulting in the bank hitting a 6.2 per cent core capital level — which is still above the 5.5 per cent minimum — would require a property crash worse than anything even in the early 1990s, when home prices in Britain collapsed.” In the Telegraph (B2), James Quinn notes that the Bank of England’s own stress tests, expected later this year, are “likely to be much tougher.”
Labour and banks discuss “help to build”
Labour has held a meeting with high street banks to work out ways to increase lending to small housebuilders if elected next year, according to the Independent on Sunday (p7). The paper reports that Labour wants a “help to build” scheme if it wins the general election next year, a policy that would involve government underwriting bank loans to small house-builders with a turnover of up to around £20 million a year.
Banks invest in cyber security start-ups
The FT (£, p27) reports that banks are taking stakes in cyber security start-ups in the hope that they could play a key role in the fight against hackers. According to data from CB Insights, corporate venture arms have more than doubled their investment in cyber security in the past two years.
Lending stats show housing market slowdown
The BBA’s High Street Banking Stats for September – which show a cooling in the housing market – were reported in many of the papers this morning. The FT (£, p4) considered the figures alongside the CBI’s industrial trends survey and GDP figures and wrote that that they gave the impression “the speed of economic growth in the UK is moderating”. The Telegraph (p3) wrote: “Some experts have said that the housing market appears to be reaching the end of a cycle of strong price growth which has taken place as the economy has picked up and consumer confidence has shown signs of returning”. CityAM (p5) reported that the fall in approvals could be down to the Mortgage Market Review which requires lenders to gather much more information about prospective borrowers, stating that: “Economists have speculated that it could severely hit housing demand.”
Richard Woolhouse, Chief Economist at the BBA, said: “A year ago there were many of us who were concerned by the heady pace of property price rises. Today’s figures suggest we are now experiencing a steadier housing market and that’s no bad thing. There’s also some encouraging growth in business lending amongst manufacturers and retailers which is pleasing to see”. Read the full release here.
Bank of England plans to avoid bailouts
The Bank of England has laid out its plans to avoid future bank bailout scenarios in the event of another financial crisis. The new rules, to come into effect next year, mean that a bank’s creditors would need to absorb losses of at least 8% of total liabilities before any public support could be provided. Before that point is reached bondholders would be exposed to losses – referred to as “bail in” (Telegraph, p1). Other measures outlined by the BoE include powers to step in and take control of a failing bank over a 48 hour period – usually a “resolution weekend” – including the right to sack bank bosses on the spot and replace them with external executives (Times, £, p50). A bank could also be ordered to sell-off assets or transfer customers elsewhere. Andrew Gracie, executive director of resolution at the Bank of England, said: “The failure of these firms should have the same impact as that of the failure of any other institution – the rest of the system is not impacted and taxpayers do not bear the cost.”
The FT (£, p3) reports on the struggle to find a suitable cross-border strategy to maintain stability in the face of an international crisis.
Firms more diligent in reporting insider trading
The Times (£, p53) features figures from the FCA that show a quadrupling in the number of reports of suspicious activity since 2008. As firms respond to closer scrutiny a total of 1,912 tip-offs were made in 2013 compared to 558 in 2008. The regulator says that not all reports of insider dealing were found to be suspicious and that some activity was reported multiple times.Read more
Housing market steadies as approvals fall
The BBA’s September High Street banking statistics provide further evidence of a cooling housing market, with approvals for new mortgages down 10% on levels seen last year. Approval levels of re-mortgages and equity release were also lower. The release also show that net lending to a range of business sectors – including retailers, wholesalers and manufacturer – has been growing consistently.
Richard Woolhouse, the BBA’s Chief Economist, said: “A year ago there were many of us who were concerned by the heady pace of property price rises. Today’s figures suggest we are now experiencing a steadier housing market and that’s no bad thing.” The release can be read here.
Lloyds to unveil new digitally focused strategy
The FT (p21) reports that Lloyds Banking Group will launch a three-year strategy to put mobile and internet banking at the heart of its business at its third-quarter results next week. The paper suggests the plan will lead to 9,000 job cuts – a 10% reduction in the group’s current head count. The bank already has 10 million users of internet banking services, including 4.5 million mobile banking customers. To read the BBA’s work on the take-up of digital banking click here.
Smaller banks deliver strong growth
The FT (£, p22) reports that Metro Bank has increased the number of its customers by 71% in just one year. Meanwhile, CityAM (p7) reports that Handelsbanken, the Swedish lender, has more than doubled business deposits in the past 12 months to £6.5 billion. Read the BBA’s report of the new generation of competitors shaking up the banking industry here.
ECB attacks claims 11 banks will fail stress tests
The European Central Bank has dismissed press reports that 11 banks from six countries will fail stress tests to be published this weekend: Telegraph (B1). The Spanish newswire EFE suggested that Greece and Italy both had three banks unexpected to be given a clean bill of health, alongside others from Austria, Cyprus and Belgium. In all, 130 organisations will be vetted by the ECB, with the results published at noon on Sunday. The ECB stressed that the reports were “speculation”.
Bailey acknowledges allowances may be paid this year
The chief executive of the Prudential Regulation Authority has acknowledged that banks may not heed guidance from the European Banking Authority over role-based allowances, the FT reports. While giving evidence to the Commons Treasury Select Committee, Andrew Bailey said: “It is too far into this year as a matter of good practice to change anything.” Mr Bailey has previously said that the debate about bankers’ remuneration is “misguided” and that variable pay is an important element of earnings.Read more
European bank resolution fund plan unveiled
France’s banks will pay the biggest bill for Europe’s banking union, and expect to contribute up to €2 billion (£1.6 million) more than Germany’s lenders towards a new €55 billion bank resolution fund, the FT writes (£, p8). Yesterday the European Commission unveiled plans to set contributions to the fund handling bank failures, which favours the hundreds of small and medium-sized lenders in Germany and Spain. Documents seen by the FT suggest that France will contribute €17 billion over eight years, representing almost 30% of the fund, while Germany will pay in about €15 billion, or 27%.
Warning on impact of new regulations
Douglas Flint, HSBC’s chairman, has warned that excessive regulations risk squeezing growth out of the global economy, CityAM reports (p2). Mr Flint said that regulators are so focused on stability that they are stopping banks from taking the risks that they need to lend to firms, creating jobs and growth. Giving evidence to the Lords EU Subcommittee on Economic and Financial Affairs yesterday, Mr Flint also attacked the “retrograde” bonus cap enforced by the EU and said restrictions on banker pay made it difficult to compete with other industries (Telegraph, B4).
Poland “in no rush” to join banking union
The FT (£, p8) writes that Marek Belka, Poland’s central bank governor, has criticised the Eurozone’s new banking union and argues that it would centralise powers to curb boom and bust that are better left to individual member states. Mr Belka said Poland was in “no rush” to join the scheme and there was no need for regulators in Warsaw to be replaced by counterparts in Frankfurt.
Doubt cast on government tax cut pledge
The Chancellor’s promise of tax cuts in the next parliament was left in doubt yesterday after it was revealed that the Treasury borrowed £11.8 billion to plug the gap between spending and tax receipts in September, the FT (£, p1) reports. The paper says in spite of Britain’s vigorous economic recovery, lower than expected income tax caused George Osborne to borrow £1.6 billion more than in the same month last year. The Guardian (p25) adds that news has lessened the chances of a pre-election giveaway at the Autumn Statement on 3 December.
It quotes a Treasury spokesman, who said that the Government’s long-term economic plan was working, with the UK economy growing faster than that of its G7 peers.Read more