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.
Apple and Vodafone set to join payments revolution
The FT (p17) reports that Vodafone and Apple are both set to launch integrated mobile wallet payments systems in the coming days. Near field communciations technology will be integrated into SIM cards or the iPhone to allow customers to swipe for payments at contactless tills. The paper quotes Mark Ritzman from m-commerce who said that these payments systems “will start to replace the leather wallet”.
Fears grow over union break-up as poll puts Yes ahead
The front pages of all the main papers this morning report that the UK could be heading for a break up following a YouGov opinion poll yesterday that put support for independence at 51%, with the No camp on 49%. It is reported that the palace is briefing that the Queen is concerned over the situation.
ECJ to hear UK challenge on bonuses as EU threatens industry over allowances
The European Court of Justice will today consider the UK’s legal challenge to the EU’s bank bonus cap. A Treasury spokesman said “These latest EU rules on bonuses, rushed through without any assessment of their impact, will undermine all of this [financial stability] by pushing bankers’ fixed pay up rather than down, which will make banks themselves riskier rather than safer. In other words, as the Chancellor has said, they may undermine responsibility in the banking system rather than promote it. Regulation of pay in this manner goes beyond what is permitted in the EU treaty. That’s why we are challenging these rules in the European court, to ensure the legislation respects the EU treaty and actually achieves what it’s meant to – a more stable banking system that serves the economy, businesses and consumers.”(Mail p62).
The front page of the FT reports that outgoing EU Commissioner Michel Barnier has written to the European Banking Authority to warn that the EU is prepared to challenge new cash allowances which have been introduced since the cap came into effect. In the letter he said he wanted to “underline [his] strong concerns with regard to the continuing reports of the use of these allowances.”
Which? calls for shake up of credit market
Saturday’s papers reported on the demand by consumer group Which? to ban the term 0% on credit cards that come with an upfront balance transfer fee and for health warnings to be given to unauthorised overdrafts with high interest rates (Guardian, p40). The Mirror (p58) quoted a BBA spokesman saying, “If you feel you are paying too much for your credit, it’s important to shop around and look at the rates offered by other providers.” It also reported on our monthly credit card statistics which showed that 42% of all borrowing on credit cards is now interest free.Read more
ECB cuts rates and introduces stimulus
Mario Draghi, president of the European Central Bank, announced measures yesterday to cut the central bank’s benchmark interest rate to 0.05% in combination with a new asset purchase programme in a bid to avoid deflation. Mr Draghi would not reveal the scale of the purchases but stated that the aim was to boost the Bank’s balance sheet by up to €1 trillion(£794 billion), the highest level since the start of 2012 (FT, £, p1). The FT (£, p7) said that Draghi’s choice of stimulus, which he refers to as “a broad portfolio of simple and transparent asset-backed securities”, marked a comeback for the practice of reprocessing bundles of loans. The Telegraph (p1) reported the consequent surge in the European markets as the euro plunged to a 14-month low of $1.30 against the dollar.
UK interest rates remain low
The Bank of England’s Monetary Policy Committee has voted to hold interest rates at their current 0.5% low and keep the central bank’s stock of assets purchased under quantitative easing to £375 billion (FT, £, p3). According to the paper, most City economists are not expecting a rate rise until next year with none of the 42 polled by Reuters expecting a rise yesterday.
Technology continues to change the way we bank
The cashpoint of the future looks and feels more like a smartphone, according to the BBC, who surveyed the latest developments in ATM technology at a recent “cash machine jamboree” in London. The event featureda new cashpoint based on a tablet computer produced by security and software company Diebold. The article explains: “It is two-thirds of the size of a traditional cash machine, uses touch screen keypads, and just plugs in using a broadband connection”. Users will also be able to organise their withdrawal in advance, and built in cameras with facial recognition protects personal safety and could even catch fraudsters in the act.
Another development in a bid to tackle fraud has been unveiled by Barclays, who hope to launch “finger vein authentication” for large businesses next year (Times, £, p46). To use this technology the user simply inserts their finger into a special reader which allows them to access their accounts without the need for PINs or passwords. Though barely known in Britain, this method of identification has been around since 2002 and is used in eight out of ten cashpoints in Japan. The Guardian (p10) writes that, crucially, the technology only works with live fingers.
You can read the BBA report on the evolution of technology in banking – The Way We Bank Now – here.
Independence vote leads pound to drop
The Times (£, p45) reports how the pound dropped a US cent yesterday as the result of speculation over the Scottish independence vote. According to the article analysts have said that a “yes” vote could create uncertainty, sparking a run on sterling and a sell-off of companies with large Scottish exposure. According to one industry expert, the pound could fall 5% against the dollar and the euro if Scotland votes to break away from the United Kingdom.Read more
New challengers see digital as the future of banking
The Times (£, p47) reports that a new bank with no branches aimed at 24 to 35 year-olds is weeks away from applying for a formal banking licence. Anne Boden, a former chief operating officer at Allied Irish Bank is leading the new venture, and says that the challenger bank will be “the first to fully harness new technology, offering its services on mobile phones and tablets and making use of data kept on customers’ devices”, adding that the project “would be more like a Google or an Amazon than a traditional bank”. Ms Boden states that the bank has aims to have “millions of customers within five years”. Anthony Thomson, who is working on bringing Atom Bank into the market, said: “I’d be very surprised if more people weren’t doing exactly this. Digital in general and mobile in particular is the future of banking.
US banks in liquidity shortfall
The Federal Reserve yesterday finalised details of the liquidity coverage ratio, which will require lenders to have a certain amount of assets which can quickly be converted into cash. The FT (£, p17) writes that if the ratio was applied today then banks would have to hold about $2.5 trillion (£1.5 trillion) of high-quality liquid assets over a 30 day stress period, which is $100 billion more than they currently have. The rules will initially only apply to the largest US banks, but the Fed is proposing to extend the measures to the US holding companies of the largest foreign banks. The FT (£, p16) Lex column argues that such regulation could lead to “perverse outcomes”.
Capital requirements too high, claim ABI
The FT (£, p4) reports that the Association of British Insurers (ABI) has accused the Bank of England of increasing the cost of insurance by “imposing unnecessarily onerous capital requirements on the sector”. The trade association’s director of regulation Hugh Savill told a conference organised by Policy Exchange that the Bank was raising minimum requirements above those detailed in the EU’s Solvency II regulation. Mr Savill claimed that there had been several recent examples of groups having more onerous requirements forced upon them, adding that this had begun “to look like a pattern”.
Bank chief warns over shadow banking
The head of Deutsche Bank Anshu Jain has called for clearer regulation of the shadow banking sector as it poses “bank-like risks”, writes the FT (£, p18). Mr Jain told a conference in Frankfurt that the shadow banking sector “must be able to give clear responses to regulators on key questions…and this requires a clear regulatory framework”. The paper adds that Bank of England Governor Mark Carney recently wrote in the FT that it was “time to take shadow banking out of the shadows”.
New ONS data shows stronger growth
Following changes to the national accounts, the ONS yesterday revealed that the economic downturn was shorter and shallower than previously believed. New figures show that the UK economy returned to pre-crash levels in September 2013, with the cumulative growth rate between 2008 and 2012 revised up by 2.6 per cent. However, the Times (£, p44) notes that the recession was still the deepest since ONS records began in 1948 and the recovery remains the lowest on record. The FT (£, p3) writes that these stronger figures will “complicate the dilemma facing the Bank of England” at today’s Monetary Policy Committee meeting. The paper also suggests that the next government will have cause for concern over public finances as stronger growth has not been aligned with higher tax revenues.Read more
Tyrie says public has lost trust in banks
Chairman of the Treasury Select Committee Andrew Tyrie appeared on this morning’s BBC 5Live Wake Up to Money show arguing that it would take years to rebuild public trust in banks. Asked whether British customers have confidence in British banks, Mr Tyrie said: “much less than they did, and that’s part of the problem we’ve got with the recovery. We need small businesses confident enough to do business with bank – that’s been badly shaken.”
BBA Director of Media Relations Rob Watts responded to the comments on BBC 5Live’s Breakfast show (7.50am) arguing that cash bonuses had fallen, reward incentives have changed and new lending to businesses is increasing.
Europe’s finance ministers to discuss details of FTT at next ECOFIN
How to implement the Financial Transaction Tax will be on the agenda when Europe’s finance ministers meet in Italy next week, according to Ben Wright in the Telegraph (B2). The move would add a levy on trades between financial institutions and has been publically opposed by the UK Government. Despite broad support for its introduction, the details of when, what and who will pay a FTT remain undecided. Wright argues that a new tax would lead to a slump in trading volumes and increase costs for banks’ customers and investors. However, the City should avoid complacency because it is likely to be introduced in some shape or form.
Read BBA Policy Director Sarah Wulff-Cochrane’s blog on why the FTT defies the EU’s guiding principles here.
Banks look at ways to keep digital identities safe
A new report by Open Identity Exchange for Lloyds examines the potential for banks to act as a safe place for customers to store all their digital information and vouch for a customer’s identify (FT, £, p24). It claims that the ability to verify someone’s identity could reduce the need for customers to provide a copy of their passport to renew their driving licence.
The move would be the latest in a series of innovations from banks as they look to adapt to customer’s increasing use of digital technology. For more information on how digital technologies are changing the way people spend, move and manage their money, read the BBA’s Way We Bank Now report (here).Read more
Complaints against British banks fall
The Telegraph reports that, according to the Financial Ombudsman Service (FOS), the number of complaints against British banks has fallen by 42% in the first half of 2014 due to a decline in the number of complaints for mis-selling insurance. In the first 6 months of 2014, PPI complaints have gone down to 134,000, from 266,000 in the same period last year. However, the Mail (p10) writes that many complaints are being “processed industrially as a number” and says that a “growing proportion” of complaints are rejected by the banks.
In response to today’s FOS figures, a BBA spokesman said: “There have been steps in the right direction, but at the same time the number of these cases still remains too high. The industry will continue to work with the FCA and the Ombudsman to maintain a good standard of complaints handling and deliver the service customers deserve.”
EU proposed new funding rules for banks will make equity swaps more expensive
According to a letter from the Global Financial Markets Association and the Institute of International Finance, the newly proposed funding rules of the Basel Committee on Banking Supervision would make it “five times more expensive for banks to facilitate short selling” (FT, £, p1). The proposed rule, the Net Stable Funding Ratio (NSFR), aims to ensure that banks hold a minimum amount of stable funding based on the characteristics of their assets. The letter says banks have “serious concerns” about the treatment of equities under the NSFR regime, saying it could “significantly increase transaction costs across equity markets for all participants”.
Mortgage lending goes down as the Mortgage Market Review takes effect
The Times (£, p43) writes that according to the Bank of England figures released yesterday, home loan approvals went down from 67,085 in June to 66,569 in July. The Times also suggests that this data “tells a similar story to that of the British Bankers’ Association”, which last week released data showing that “high street lenders had handed out fewer mortgages to households last month as the impact of new rules to control riskier borrowing continued to filter through”. The Bank’s figures also showed a £3.4 billion rise in net lending to households in July, the highest since 2008.Read more
SME lending up for third month
This morning the Bank of England released their monthly monetary and financial statistics, Bankstats. The figures for July showed an increase in net lending to small and medium-sized businesses for the third month in a row.
Commenting on the figures, a spokesman for the BBA said:
“These figures show that the net lending picture for Britain’s smaller businesses has been positive for three consecutive months. It’s heartening that fewer firms see access to finance as an obstacle to their business aspirations.
“Banks are in the business of lending and this is good news for the economy. We encourage any business to consider applying for credit to help them grow, export or take on new staff.”
Cyber attacks on US banks
Attacks on US banks by financial “Trojans” has tripled in the last year, according to the FT (£, p19). This increase has prompted the US Federal Bureau of Investigation and US secret service to announce an inquiry. It is not clear who is behind recent attacks or what they were seeking but according to the article, bank websites, automated clearing houses and payroll systems are being targeted. Orla Cox, a security operations manager at Symantec, said: “The attacker is interested in financial consumer data but also, a lot of times, information on M&A and other stuff along those lines can be potentially interesting for reasons of corporate espionage, gaining competitive advantages.”
See the BBA’s report on cyber security – The cyber threat to banking: A global industry challenge – here.
CBI calls for action on airports
The CBI today urges the Government to take urgent action to expand Britain’s airports, with “spades in the ground by 2020”, the Telegraph (B1) reports. The business lobby group maintains that a single hub airport is necessary alongside spare capacity to add new routes.
A Whitehall-commissioned report by the economist Sir Howard Davies is set to deliver its recommendations on how Britain should expand its airports after next May’s election.
Katja Hall, the CBI’s deputy director general, said: “There can be no more excuses – we need to see the Airports Commission deliver a strong case for new capacity and a clear schedule for delivery.”
The BBA will be producing a new report on infrastructure later in year.Read more
*Please note that this will be the last BBA brief until Monday, 1st September*
Nearly 40,000 people use help to buy
Housing minister, Brandon Lewis said that via Help to Buy the Government has assisted with the purchase of up to 40,000 new homes. The Guardian (p34) reports that more than 4,000 households in England used the government scheme in June – the highest number since the scheme was launched in 2013. These latest figures are from the first phase of the scheme which offers an interest-free loan for 20% of the value of a new-build property.
Rates may rise early, says deputy governor
Bank of England deputy governor Ben Broadbent has said that interest rates may rise early but any rises will be “limited and gradual” to take account for borrowers and the levels of household debt (Mail). They quoted Broadbent from an interview with Bloomberg: “The real message we’re trying to get across is that for other reasons to do with what’s going on in the global economy, investment, credit and risk premia, the level of interest rates that’s likely to be necessary to meet our objectives and the gradient of our path to get there, are likely to be lower than the previous expansions.”
Eurozone inflation falls
The BBC reports that Eurozone inflation has fallen to 0.4%, its lowest level since the financial crisis when prices fell to 0.1%, and into what the European Central Bank (ECB) describes as “the danger zone”. The central bank considers that inflation of below 1% risks deflation. According to the FT (£, p6) it could fall again in August, putting more pressure on the ECB to start quantitative easing.
Banks face closer scrutiny as ECB begins clean-up
The FT writes that losses at Banco Espirito Santo and BNP Paribas are likely to reminder the industry of “the risks posed by tougher regulation and closer scrutiny of financial balance sheets”. The losses come as the ECB begins its comprehensive assessment process, reviewing lenders’ balance sheets ahead of the launch of a banking union. James Chapell, an analyst at Berenberg told the paper: “…hidden losses in bank balance sheets continue to get uncovered, as people are unable to support those debts”.Read more
Bank announces rules on remuneration and senior managers regime
A number of papers report on yesterday’s announcement by the PRA and FCA over proposals to clawback bonuses seven years after they have been paid and jail bankers whose decisions contribute to a bank failure.
The FT (£, p3) quotes BBA CEO Anthony Browne, who states: “It is important that any new regulation does not put British banks at a disadvantage when it comes to attracting and retaining the best workers her and overseas”. The paper also notes that employment lawyers believe that clawbacks will be difficult to enforce “particularly where bankers have resigned and moved abroad”. The Telegraph (B1) also quotes Anthony, and cites a senior banking source who warns that the new regime could be a potential “gravy train” for lawyers as bankers challenge decisions made by former employers.
The Times (£, p35) writes that the new rules will cost banks and building societies £260 million to implement. Although the rules apply to UK banks plus subsidiaries of foreign banks operating in the UK, the Independent (p51) reports that watchdogs are working on how to apply the new regime to foreign banks which are presently overseen by their home country regulators.
Anthony appeared on BBC Radio Five Live, BBC Radio World at One and BBC News to discuss the proposals, whilst BBA Director of Media Relations Rob Watts was interviewed on Sky News, BBC Radio Oxford, the Voice of Russia and French Radio London. The full BBA press release reads: “One banker rewarded for failure is one too many. That’s why banks have already taken steps to right the wrongs of the last decade, cutting cash bonuses by more than 75% and fixing rewards more closely to the long-term health of the business. We also agree that clawbacks can certainly be a useful way to discourage wrongdoing and are in the interests of customers and shareholders. We’ll examine the detail of these new proposals with interest, but it is important that any new regulation does not put British banks at a disadvantage when it comes to attracting and retaining the best workers here and overseas.”
Commission president considers finance tsar
Incoming European Commission President Jean-Claude Juncker is weighing up creating a new EU financial services tsar charged with regulating the financial sector, according to the FT (£, p1). Currently, EU financial regulation is overseen by the internal markets commissioner Michel Barnier. However, senior officials state that the new finance directorate would most likely include the banking and market units from Mr Barnier’s department, and combine them with the financial stability unit from the economic and financial affairs department. The FT says that banks are concerned that this will skew financial services regulation towards the Eurozone. The paper quotes the BBA’s EU caucusing report, which states: “We suggest that the UK government should proactively defend the unity of [the internal market directorate] and oppose any plan to move financial services units out of it.”
US banks braced for outflow
The FT (£, p16) reports that US banks face losing up to $1 trillion in wholesale deposits as the Federal Reserve reverses emergency economic policies and raises interest rates. These measures were introduced to increase liquidity and provide support for banks following the crisis.
ECB survey shows improving lending climate
The ECB’s quarterly lending survey reveals that banks relaxed credit standards for all types of loans in the three months to June, with the FT (£, p8) noting that this is the first time this has happened since Q2 2007. The survey also signals that demand for loans from households and businesses has continued to rise. Analysts believe that the stronger lending figures make it less likely that the ECB will take further unconventional measures such as quantitative easing.Read more
Tougher regulation regime from Bank
The Bank of England will today publish two new regulation documents on the senior managers’ regime and banking remuneration (FT, £, p1). According to the FT, this new regime could include powers to claw back bonuses up to 7 years after they have been paid and a new law that would see “reckless” bankers sent to jail. In the Guardian (p24), the UK Head of Banking and Capital Markets at EY Omar Ali said: “The regime is likely to be the strictest of any market or any industry.” The Times (£, p37) writes that the Bank of England will also signal its intentions to ensure that the pay of managers and other staff implicated in future financial scandals and bank failures can be recouped.
Europe’s investment banks “regain ground”
The FT (£, p17) reports that Europe’s investment banks are finally “regaining some ground” after a period in which they have been losing market share to US rivals. According to the FT, one of the significant reasons for Europe’s positive performance is that the continent’s banks had an easier time in beating last year’s results. In 2013, European banks were “hit much harder” than their US counterparts by the downturn in debt trading by the Federal Reserve’s reduction in its bond purchasing programme. In relation to the European banks’ performance, Analyst at JP Morgan Kian Abouhossein said: “They have simply regained some of the market share that they have lost last year.”
Lambert: Bankers’ oath “just hot air”
Responding to proposals from think tank ResPublica, calling for bankers to take an oath, Head of the Banking Standards Review Sir Richard Lambert said the proposal was “hot air” and warned it could even “backfire”, undermining standards in the banking sector (CityAM, p30). Sir Richard also stated that: “If you have all bankers taking an oath and it is just words, and it is then within six months to be flawed, I think you’re in a worse place than you were before.”Read more
ResPublica calls for bankers’ oath
A new report by the think-tank ResPublica, Virtuous Banking, calls on the banking industry to mimic the medical profession by introducing an oath for bankers (Times, £, p3). ResPublica director Philip Blond said: “The bankers’ oath represents a remarkable opportunity to fulfil their proper moral and economic purpose”. The report will be launched by Sir Richard Lambert who chairs the Banking Standards Review Council, a body established to examine culture and ethics in the profession. Speaking on the Today Programme on BBC Radio 4 Sir Richard said that whilst it was the “most headline grabbing” recommendation in the report, he did not necessarily endorse the proposal. BBA Chief Executive Anthony Browne is quoted in the Times on cultural change saying: “There’s clearly been some progress since the financial crisis, but there is still a long way to go.”
The BBC quote BBA Executive Director for financial policy and operations, Paul Chisnall, saying: “Restoring trust and confidence is the banking industry’s number one priority. But meaningful cultural change in an industry as complex and diverse as banking takes time. The Parliamentary Commission on Banking Standards reached a similar conclusion and that’s why initiatives like Sir Richard Lambert’s Standards Review are so important. It may be that the new standards review body decides that some within the industry should be subject to an oath or a code of ethics. It very well could be part of the answer.”
Lloyds freeze bonuses of those involved in rate rigging
Lloyds Banking Group has frozen bonuses for 22 members of staff after the bank was fined £226 million by UK and US regulators for its role in rigging the rates in the Bank of England’s Special Liquidity Scheme (Mail, p65). Bank of England Governor Mark Carney issued a statement calling the actions “highly reprehensible” and suggested criminal proceedings may be undertaken against those involved. Chief executive Antonio Horta-Osorio condemned the practice, saying: “Together, the board and the group’s management team have taken vigorous action over the last three years to prevent this kind of behaviour, through closing or reducing our legacy investment banking activities”. Lloyds Chairman Lord Blackwell added: “Their behaviour involved a gross breach of trust and we condemn it without reservation” (Telegraph, B1).
IMF says pound overvalued but interest rates should stay low for now
The International Monetary Fund’s (IMF) annual assessment of the UK economy suggested that the pound was overvalued by as much as 10%, preventing the economy from rebalancing towards exports (FT, £, p4). The Fund added that whilst the Bank of England should hold interest rates for now, policymakers should raise them to keep the housing market in check (Guardian, p17). Despite concerns, the IMF said that some of the “headwinds” holding back the recovery had eased as it revised the UK’s growth forecast for 2015 up from 2.7% to 3.2%.
New Money Market Funds could increase systemic risk
The FT Stephen Foley (£, p26) discusses the US Securities and Exchange Commission’s new money market fund rules, which were designed to limit systemic risk and prevent runs across the fund management system. Despite their intention, Mr Foley argues that because many investors will not be able to countenance the risk of losing access to their money in the event of a run, the practice of erecting gates to protect investors may actually increase systemic risk.Read more