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 warns that mortgage rules could disproportionately hit private banks
The FT (£, p23) reports that new rules could restrict the number of mortgages being offered to high-net worth customers unless they are adapted. The BBA has warned that the proposals by the Bank of England’s Financial Policy Committee to put a 15 percent limit on the total number of mortgages that a bank can lend at more than 4.5 times a borrower’s income could have “significant effects” on private banks’ ability to offer mortgages. Despite low default rates of less than 1 per cent, many private bank clients could be caught by the new rules because they tend to be asset rich but do not have a steady income. The BBA argues in the article that the rules will “disproportionately affect” private banks. Saturday’s Times (£, p57) looked at the increasing competition in the private banking sector. Read Nicholas Smith’s blog here.
A million switchers use new service
The Herald (p25) reported that more than 1 million people have taken advantage of the new Current Account Switching Service which allows you to change account within seven days and redirects your direct debit payments automatically. In Saturday’s Independent (p64) Andrew Hagger says that the service is “running like clockwork” and encourages people to look around for better deals because it is “very easy to switch” to get an account that suits your individual needs.
City gears up for new fight on allowances
The Sunday Times (£, p3) reported that the European Banking Authority (EBA) is likely to rule that new role-based allowances for top earning bankers might breach the EU’s bonus cap rules. If not it is likely to change the rules to outlaw these payments. The front page of CityAM speculates that this could lead to legal challenges from the industry.Read more
Scotland remains a part of the United Kingdom
The people of Scotland have decided that their country should remain part of the union with England, Wales and Northern Ireland. The FT reports that this ‘no’ vote is likely to boost the economy, averting scenarios feared by investors such as a slump in the pound and capital flight from Scotland. According to the paper, investors reacted with relief with bank shares up sharply after the market opened (FT). Economists believe that pent up demand could now be released, with property and investment deals that had been put on hold going ahead. David Davidson, the Scotland managing director at Cushman & Wakefield commercial property advisers told the paper: “For the last three months it feels like we have been driving with a handbrake on. There will be a surge in investment market activity when the handbrake is released”. Thoughts have now turned to the impact of devolution on spending and public finances. Economist Samuel Tomb told the paper: “…despite the No vote, the UK economy will continue to be buffeted by uncertainty about its political future over the next couple of years.”
Fines on banks can lead to financial exclusion
Speaking to the FT (£, p19) Jeremy Bennett, chief executive of Nomura in Europe said that developing countries are having their capital cut off by western banks who are concerned about the multi-billion dollar fines imposed by regulators for sanctions and money-laundering violations. He said: “The use of sanctions as a geopolitical tool is a big risk for financial markets. What we are doing with best intentions in our capital markets regulations, in our money-laundering [regulation], in our use of sanctions…that has an unintended consequence of excluding a large part of humanity from access to capital. That worries me greatly”. The article gives the example of the $9 billion (£5.5 billion) in fines imposed upon BNP Paribas who pleaded guilty to providing finance for customers in Sudan, Iran and Cuba. Mr Bennett says that he ultimately worries about the impact exiting such countries will have on the City of London which acts as a financing hub for many low-income nations.
August mortgage lending hits six year high
The Mail (p2) reports on data from the Council of Mortgage Lenders (CML) showing that mortgage lending for this August marked a 13% increase on the same period last year – the highest levels since August 2008. The FT (£, p4) reports that gross mortgage lending in the year to August sits at £203 billion, with a sharp increase in the number of first-time buyers taking out a home loan. However CML chief economist, Bob Pannell, warned that the new Mortgage Market Review rules could cause a slowdown in the remaining months of this year: “A gentle slowing of lending activity may now be in prospect, as a result of the continuing impact of tighter lending rules and a softening of the London market.”
Low take up on cheap finance
The ECB president’s plan to offer cheap four-year loans in an attempt to avoid economic stagnation has faltered due to little interest from commercial banks (Le Soir and FT, £, p1). In total 255 banks took €82.6 billion (£65 billion) out of a possible €400 billion (£243 million) – much less than analysts had predicted. The lack of demand has dealt a blow to Mario Draghi’s ambitions to expand the central bank’s balance sheet to €1 trillion in order to boost lending to small businesses and counter inflation. An article in the Times (£, p53) says that this disappointment is likely to pile more pressure on the ECB to consider moves like quantitative easing, though there is also speculation that low take-up could have been due to the region’s banks not wanting to reveal a weak funding position just weeks before new stress tests.Read more
ECJ ruling could see VAT bills rise for financial services
The European Court of Justice has ruled that services supplied between a group’s headquarters and its branches will be subject to VAT. Previously, European VAT law has allowed countries to treat companies and their overseas branches as single entities, however these services will now be taxed at rates of between 15% and 27%, writes the FT (£, p17). The Telegraph (B7) states that the ruling will “disproportionally affect the UK financial service industry”, with British banks that receive services from foreign offices and the UK subsidiaries of banks headquarters elsewhere likely to be affected.
G20 split over impact assessment of regulation
The current holders of the G20 presidency Australia are facing opposition after it backed calls to undertake a cost-benefit analysis of financial regulation, writes the FT (£, p7). B20, the business lobby group, has called for international standard setters to investigate side-effects of financial regulation and consider their impact on growth and stability. However some G20 members such as Japan and the US have voiced their concerns, stating that individual nations already have robust procedures to analyse such regulations.
Commentators warn of EU membership following Yes vote
BBC Business Editor Kamal Ahmed warns that a Yes vote in today’s Scottish referendum could increase the likelihood of the UK leaving the EU. He adds that those businesses who may wish to relocate may move to continental Europe rather than the UK due to the heightened risk of Brexit. In the FT (£, p24) Jonathan Guthrie echoes Kamal’s sentiments, stating that Scots are more pro-european and that a Yes vote could make the “English more nationalistic and thus more eurosceptic”.
Lenders cut mortgage rates
A number of mortgage lenders have cut their rates and increased their range of fixed-rate loans in recent days, despite expectations that the Bank will raise interest rates next year, reports the Guardian (p29). The Mail (p30) writes that it is “great news for consumers” after a “rising number of new lenders has helped to increase competition and push down rates”.
Fed to keep rates low
The US Federal Reserve has committed to keeping interest rates low for a “considerable time”, reports the Times (£, p41). The central bank confirmed that rates would remain low as long as inflation was under control and until there were improvements in wage growth and long-term unemployment. The policy statement also revealed that the Fed would cut its buying of Treasury bonds by another $10 billion (£6 billion) per month, and expects to end the programme after October (Independent, p59). However the FT (£, p1) writes that the Fed expects rates to rise by 1.25% – 1.5% in 2015, implying five rate rises in their eight meetings next year.Read more
Infrastructure investment on hold in Scotland ahead of independence vote
More than 80 public-private partnerships worth £6.2 billion are on hold as foreign investors wait for the result of the Scottish independence vote (Telegraph, B5). The projects are mostly local authority backed and underwritten by the UK Government. However, it is unclear whether the support would be withdrawn if Scotland decides to leave the UK, which is creating uncertainty amongst investors. Elsewhere, the Times (£, p41) reports that a survey of fund managers by Bank of America Merrill Lynch has identified the UK as the “least popular market for investment” because of fears that Scotland will leave the UK.
Government “bad bank” is close to selling mortgage book
The Telegraph (B3) reports that UK Asset Resolution (UKAR), which was created from the toxic debts of the bailed-out banks Northern Rock and Bradford & Bingley, has selected JP Morgan as its preferred bidder for a £1.6 billion package of state-owned mortgages. TSB is also believed to have expressed an interest in the purchase. The move could see the British taxpayer recoup hundreds of millions of pounds, but UKAR still has more than 520,000 “risky” mortgages on its balance sheet worth around £75 billion.
G20 to back OECD rules to end corporate tax avoidance
New rules designed by the Organisation for Economic Cooperation and Development (OECD) and submitted to the G20 aim to stop transnational corporations from “exploiting differences between tax regimes to conjure up unwarranted tax deductions”, reports the Guardian (p23). The organisation has criticised the current international tax system, which has more than 3,000 bilateral tax treaties, and wants to prevent countries from offering tax incentives to encourage corporations to domicile with them. The move would mean an end to retailers, such as Amazon, using its residence in Luxembourg to avoid paying taxes on UK transactions.
US money market funds using new Fed tool instead of banks
European and US banks have expressed concerns that the increasing use by US money market funds of the Federal Reserve’s new “reverse repo programme” (RRP) is distorting the bank repo market (FT, £, p28). The RRP allows the central bank to lend bonds from its vast portfolio of assets to large investors, which will give the Fed some control over short-term interest rates when it takes money out of financial markets. However, banks warn that the tool is exacerbating the outflow of deposits from their institutions.Read more
Contactless tube payment
In an article for CityAM (p21), BBA Chief Executive Anthony Browne writes about the latest advance in the UK banking revolution: contactless tube payment. In the article, Anthony states that “this is just the latest chapter of the astonishing evolution that isn’t just good for consumers but for our country’s economic prospects too”. The article also mentions the BBA’s report published jointly with EY “The Way We Bank Now”, which suggests that “the UK would need an extra 750,000 digitally-skilled workers over the next three years if it is to capitalise on a £12 billion economic opportunity in the digital sector.”
BoE blames household debt for the deep recession
A number of papers report that high household debt levels could have been one of the main reasons why the 2008 financial crash became the longest and deepest recession since the 19th century, according to the Bank of England’s Quarterly Bulletin (Guardian, p24). The BoE said this research justified its decision in June to limit mortgage borrowing “to insure against a further significant increase in the number of highly indebted households” (FT, £, p4). The Independent (p57) quotes the report researchers saying: “It is possible to make the case that debt played at least some role.”
Scottish “yes” could force the BoE to raise interest rates sooner than expected
In the Times (£, p44), Paris based Lyxor Asset Management warns that a Scottish “Yes” vote could force an interest rate rise. The article explains that “until a month ago, hedge funds had net long positions of sterling versus the dollar, but with increased possibility of Scotland voting for independence, this has gone into reverse”. Albert Edwards, a strategist at Societe Generale, said: “Interest rates may be set to rise a whole lot faster than anticipated if we get a good old-fashioned sterling crisis.”Read more
BBA raises concerns over leverage ratio proposals
The BBA has argued that the Bank of England’s new leverage ratio proposals are “too complex and potentially damaging”. In an article on our website BBA Executive Director Simon Hills argued that the plans “would particularly impact lenders with lower risk business models such as mortgage providers. This could create perverse effects- such as incentivising banks to increase the cost of new mortgages or even to engage in higher risk lending. This is the opposite of what policymakers want to achieve.” (Sunday Telegraph, B1, Reuters)
To read the full consultation response click here.
EU ministers fail to agree on FTT; Schaeuble says “small first step” is on the cards
At the informal ECOFIN meeting in Milan on Saturday European finance ministers failed to agree on proposals for a new Financial Transactions Tax (FTT) after opposition from France. German Finance Minister Wolfgang Schaeublesaid:“Given the different situations in the different countries, we will probably only agree on a small first step, but a small first step is better than none… I am very optimistic that, if we make the first step, we will create a knock-on-effect that leads to further steps and that could convince other countries to join in.” It is expected that a proposal could be agreed on by the end of the year. (EUbusiness)
End of free banking could spur new entrant
The Sunday Telegraph (B2) reports that the Competition and Market Authority’s consultation on whether to hold a full enquiry into the banking sector ends on Wednesday. The article speculates that if the result of the enquiry is a recommendation to end “free when in credit banking” this could lead to a wave of new companies entering the market, which could boost competition.Read more
Hike in UK interest rates could shake market
Speaking to the BBA Donald Kohn, a former vice-chairman of the US Federal Reserve’s Board and current member of the Bank of England’s financial policy committee, has warned that raising interest rates “is not without its risks and dangers” (Times, £, p51). Following remarks made by Bank of England governor, Mark Carney, who said that rates were likely to rise in the spring, Mr Kohn said that the banking industry needed to be ready for defaults, an increase in borrowing costs and a liquidity crunch.
Mortgage approvals for first time buyers highest since crisis
The Mail (p6) reports figures from the Council of Mortgage Lenders (CML) which signal that first time buyers are “flocking back to the market”, with the number of mortgages approved at its highest level since the crisis. The number of home loans approved last month topped the 30,000 mark for the first time since August 2007.
The same CML statistics also revealed that the over-60s are driving the boom in buy-to-let (Mail, p18). According to CML, the number of older borrowers taking out loans for rental properties has risen by 58% in two years.
Apple’s mobile payment technology could come to Europe
The FT (£) reports that banks and credit card companies are in talks to bring new payment technology to Europe. At the moment those hoping to buy the new iPhone 6 when it is released in the coming days will not be able to use Apple Pay, which allows customers to pay for goods using their phone or Apple watch, as it will be launching in the US first. Apple are currently in talks with European banks and credit card companies who will need to sign-up to the technology. If introduced, Apple Pay could be used on the 350,000 points of sale in the UK that currently offer contactlesspayments.
To read more about how banking and payment technology is evolving, take a look at the BBA’s The Way We Bank Now report here.
BoE shows concern over virtual currency
The Bank of England has said that virtual currencies such as Bitcoin could “make central banks obsolete, create huge economic risks and trigger deflation”, according to an article in the Times(£). The Bank stated that people could be defrauded and that governments would have to address “taxation, money laundering and the possible use of new payment systems in financing terrorism or other crime”. The BoE added: “The total stock of digital currencies is at present too small to pose a threat to financial stability, but further increases cannot be ruled out and it is conceivable in time that there could be an asset price crash among free-floating digital currencies that had the potential to affect financial stability.”
IMF warns over Scotland vote
The International Monetary Fund (IMF) has warned that a “yes” vote in the Scottish referendum next week could result in market turbulence (FT, £, p4). A spokesman for the organisation said: “The immediate effect is likely to be uncertainty over the transition to potentially new and different monetary, financial and fiscal frameworks in Scotland”. The article goes on to say that an independent Scotland would have to resolve its membership of the IMF as, with a population of just 5.3 million, it would be too small to have its own executive director and would have to look to form a constituency with another territory.Read more
1.1 million customers have switched current accounts
Figures released by the Payments Council show that between October 2013 and August 2014 there’s been a 19% increase in the current account switching rate, in comparison to the same period last year (Guardian, p34). The figures also show that an estimated 1.1 million customers have switched provider in the 11 months since the Current Account Switch Service (CASS) was launched. The Mirror (p58) highlights the Payments Council’s Executive Chairman Gerard Lemos saying: “It’s clear from reviewing the very first year that it’s [CASS] made great ground.”
Juncker nominates Lord Hill as financial services Commissioner
A number of papers report Juncker’s decision to nominate Lord Hill as the new financial services Commissioner for the EU. The Telegraph (p14) writes that Lord Hill – if approved by the European Parliament – “will oversee a major economic shake-up with plans to liberalise the European Union’s capital markets.” Lord Hill said it was a “great responsibility” to run a new commission department and David Cameron stated yesterday that Lord Hill’s appointment was “a great piece of news” and that it’s “great to have someone in the heart of the European Commission”. BBA’s Chief Executive Anthony Browne also commented on Lord Hills’ nomination by saying: ““This appointment should be good for customers and businesses as the Commission looks for ways to unlock the flow of finance to bolster jobs and growth across Europe.”
Carney warns Scotland over needing “billions in reserve” if they vote “yes” to independence
Bank of England Governor Mark Carney told MPs on the Treasury Select Committee yesterday that central banks will need to have at least 25% of their GDP in reserve if they use another country’s currency (FT, £, p4). Dr Carney used Hong Kong as an example, which has US Dollars as its currency and 110% of its GDP in reserve. Dr Carney said: “Countries with complex financial systems would require higher levels of reserves.” The Telegraph (B1), highlights Carney saying there would be “real fiscal costs” to this, while Andrew Tyrie, Treasury Select Committee chairman, said Scotland would face a “very big shortfall” which would “almost certainly” need cuts or higher taxes.
Germany and France raise concerns over the ECB’s securities plan
The European Central Bank (ECB) plans to revive the Eurozone economy by buying asset backed securities (ABS), despite doubts from Germany and France (FT, £, p6). The ECB President, Mario Draghi, announced last week that the ECB intends to buy an “unspecified” amount of these securities from banks to “free up” balance sheets and “boost” lending to businesses in the EU. However, the French and German finance ministries are calling for measures to encourage “high quality securisation” and believe that “an intervention in the form of a public guarantee scheme would be problematic”.Read more
Party leaders head to Scotland to campaign for “No” vote
The newspapers are dominated by the latest news from the Scottish independence campaign, as the latest poll indicates voter intentions are nearly 50:50 (Times, £, p8). The Guardian (p1) reports that the leaders of Britain’s three main political parties have agreed to suspend Prime Ministers’ Questions in favour of travelling to Scotland to support the “No” campaign. A joint statement said: “There’s one thing on which we all agree passionately: the United Kingdom is better together”. Writing in the Mail (p7), David Cameron argues that “our union is precious” and outlines plans to give more powers to Scotland over taxation and borrowing.
The Times (£, p8) describes how “Devo-Max” might work and reports that Bank of England Governor Mark Carney has called a currency union between the UK and an independent Scotland “incompatible with sovereignty” (Times, £, p7). The comments come as several investors indicate they are pulling cash from Scotland to limit their exposure to the UK (FT, £, p1).
Meanwhile, the Financial Conduct Authority’s Chairman, John Griffith-Jones, told the Treasury Select Committee that the financial regulator was making “contingency plans” for a “Yes” vote. Mr Griffith-Jones added he was unable to comment on the precise nature of post-independence regulation. At the evidence session, Treasury Select Committee Chairman Andrew Tyrie criticised the regulator for a “slow and apparently obstructive approach on a number of issues” and called for greater scrutiny of money–laundering regulations (Telegraph, B3).
Carney tells TUC interest rates likely to rise before wages
Speaking at the Trade Union Congress in Liverpool, Mark Carney indicated that interest rates will begin to normalise in spring 2015 and continue to rise “very gradually” (Mail, p4). The comments were made as part of the conference’s debate on the lack of wage growth in the UK. Dr Carney said pay rises are not expected to exceed inflation until “around the middle of next year”. The Governor added that firms had looked to hire during the recession instead of investing in capital, which meant more people were in work.
Dr Carney also said he found the lack of female executives at the Bank of England “striking”. The proportion of female senior managers at the Bank has increased from a fifth to a third since the Governor took over, but the process of rebalancing would “take years”.
Apple launches new iPay technology
Alongside yesterday’s launch of its new iPhone6 and iWatch, Apple announced iPay, a new payments system that will allow consumers to pay for goods via their “smart” devices (FT, £, p1). Tim Cook, the company’s new CEO, said that Apple hoped the technology, which will only be offered in the US at first, would “replace” the traditional wallet and plastic card.
Elsewhere, the Mail (p45) reports that Lloyds Banking Group is set to trial the use of fingerprint recognition technology for its mobile app. It aims to make “paying quicker and more efficient and the app more secure”, according to a Lloyds spokesperson. Read more about how technology is changing retail banking in the BBA’s Way We Bank Now report here.Read more
UK bonus challenge begins in ECJ
The Government’s attempt to overturn the cap on bankers’ bonuses began in the European Courts of Justice yesterday. The Telegraph (B5) reports that Belgian judge Koen Lenaerts and Advocate General Niilo Jääskinen focussed on the argument by Treasury lawyers that the ruling contravenes the Lisbon Treaty. Mr Lenaerts described this claim as “inconsistent” as the UK had not opposed other parts of similar EU legislation. Mr Jääskinen announced that the final judgement on the case would be made on 20 November 2014. The paper adds that although the decision is made by the group of judges, “they tend to follow the Advocate General”.
Meanwhile, MEPs will threaten to veto the candidate for the next EU financial services commissioner unless they promise to prevent banks from circumventing bonus cap rules, according to the FT (£, p8). Gianni Pittella, leader of the parliament’s Socialist group, told the paper: “If you are part of the EU you must apply the same rules as any other member state.”
TSB to open more branches
A year after it began trading as a separate company, TSB has announced plans to open 30 new branches, writes the BBC. The bank has also promised customers that they will be able to telephone their local branches directly, with CEO Paul Pester stating “TSB is a High Street bank, not a Wall Street bank”. In addition, Santander has also announced plans to open or extend more than 30 branches over the next two years. Read the BBA’s Promoting competition in the UK banking industry report here.
BSA rejects leverage ratio proposals
In its response to the Bank of England’s consultation seen by the FT (£, p22), the Building Societies Association (BSA) has questioned plans for a tougher leverage ratio, describing it as a “primitive” measure of risk. The association warned that firms would be incentivised to take on more risks and pass higher costs onto consumers. The submission also argued that a rise in the ratio from 3% to 4% could result in a 25% fall in mortgage lending.
HMT calls on end to red tape
HM Treasury’s financial services director Katharine Braddick has called for Brussels to deal with the unintended consequences of red tape that have resulted from European legislation. Ms Braddick told delegates at the BBA’s Foreign Banks Reception: “The EU must take stock, review the cumulative effects of this enormous post-crisis package of regulation, and ensure the unintended consequences are mitigated”. For more information on BBA events click here.Read more