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.
UK banking sector “almost out of the woods”
BBA Director of Strategy James Barty writes in CityAM (p15) that since the financial crisis banks have increased equity capital and halved overall leverage to create a more secure banking system. He adds that lending to individuals and businesses will increase as banks return to profit. James concludes that “the sector has started to turn a corner, and this is good news for the economy as well”.
German academics question legality of banking union
Europe’s banking union will be challenged in Germany’s constitutional court, after a group of Eurosceptic academics claimed that it is illegal under German law as it was created without the necessary treaty changes. Markus Kerber, a finance professor at Berlin Technical University told the FT (£, p6) that the case concerned both the single supervisory mechanism and the single resolution mechanism, adding that “the European Central Bank has been given more power than it should have”. The FT states that the case could spend months in the courts, forcing European officials to defend one of the main responses to the Eurozone financial crisis.
NY Fed to focus on bank ethics
The Federal Reserve Bank of New York is to step up pressure on banks to improve their ethics and culture following allegations of benchmark rate rigging, writes the FT (£, p17). NY Fed general counsel Thomas Baxter has written to bank executives stating that the tone needs to be set at the top. Although banks have increased the number of compliance staff, the FT writes that they are “worried about how regulators will measure how well they are doing in terms of ethics and culture”. Read BBA Executive Director of Financial Policy and Operations Paul Chisnall’s blog on Sir Richard Lambert’s Banking Standards Review here.
Financial sector to feel effect of Russian sanctions
The Telegraph (B4) writes that Trade Minister Lord Livingston has warned that the City of London will feel the force of tougher sanctions on Russia, stating: “We’ve got to make sure that the whole of Europe thinks that the UK is absolutely willing to take its share of the pain and do the right thing.” Meanwhile, the FT (£, p5) reports that German Foreign Minister Frank-Walter Steinmeir has said that Germany will back EU economic sanctions against Russia. Wolfgang Münchau writes in the FT (£, p11) that any sanctions imposed on Russia could have adverse macroeconomic effects in Europe.
Concerns grow over rate rises
Halifax’s Housing Market Confidence tracker reveals that the net balance of people who think that 2015 will be a good time to buy a house has fallen from 34 per cent to 5 per cent in the first three months of this year, writes the Telegraph (B1). The survey states that the reasoning behind this is down to inflated prices and a potential rise in interest rates, with 18 per cent of people pointing to action by the Bank of England as cause for concern, up from 13 per cent last year. In addition, CityAM (p2) cites a survey by accountancy firm Moore Stephens which states that a one per cent rise in interest rates could cost UK companies £2 billion a year, whilst individuals would see costs rise by £7.6 billion. The Express (p48) warns that the ONS may revise its GDP estimate up by 2.5 per cent as part of its revision of the national accounts, which would “heap further pressure” on the Bank to raise rates.Read more
UK economy grows by 0.8%
The Office of National Statistics have released GDP figures showing that the economy is now 0.2% ahead of its pre-crisis peak, growing by 0.8% in the second quarter of 2014 (BBC).
Tougher accounting rules for banks
Yesterday the International Accounting Standards Board published a new package of reforms – IFRS 9 – which will come into effect in January 2018. The FT (£, p20) writes that these new measures will require banks to recognise expected losses at an earlier stage than in the past. The standard is the result of a five year project after concerns about impairment surfaced during the financial crisis as banks were unable to recognise losses until they were incurred, despite their ability to see the losses coming. This, in turn, led to overstated profits at times. The Times (£, p39) says that critics of the new standards think they do not go far enough as they only force banks to look ahead to the next 12 months rather than over the lifetime of a loan – a crucial difference between the new rules and a similar standard under development in the US which investors will need to understand when comparing peer groups of banks.
EU proposals could stop banks charging for research
The Financial Conduct Authority has endorsed European proposals that could stop banks charging investors for research out of share dealing commissions (FT, £, p3). The measures would separate out charges for trading shares and the cost of broker research in order to avoid conflicts of interest and make sure investors get a better deal. According to the article, proposals have triggered concern that London’s competitiveness could be put at risk and some smaller brokers could be put out of business.
Knock-on effect of Russian sanctions
The Telegraph (B5) writes about the knock-on effect of Russian sanctions on British business, quoting a senior figure from a US investment bank who has said that there is an “increasing degree of caution” in the City. The article goes on to examine the impact on different industries, saying that London’s international investment banks are likely to notice the impact.Read more
SEC approves new rules on money market funds
The Securities and Exchange Commission (SEC) has approved new rules on money market funds in order to prevent future runs on the investments (FT, £, p28). The FT reports that this new reform requires certain funds which had been treated like bank accounts to switch to a floating share price instead of a fixed $1 a share cost. The article also reports that to prevent runs “new rules would allow a money market fund’s board to impose temporary suspension on redemptions…if a fund’s level of weekly liquid assets fell below 30% of its total assets”.
Mortgage approvals increase 3.3%
Despite new lending rules in the housing market, data released by the BBA shows that mortgage approvals have risen 3.3% since May (Telegraph, B3). The number of mortgage approvals went up from 41,881 in May to 43,265 last month (Times, p42), this figure represents the highest number of approvals in three months but remains below the peak levels seen at the beginning of the year (FT, £, p3).
The BBA Chief Economist Richard Woolhouse said: “These figures show that mortgage approvals are rising again after four months of decline. That’s encouraging because those decisions are a leading indicator of what’s happening in the housing market. But the jury is still out on exactly how the new rules are affecting customer applications or approvals. Nevertheless, the higher demand for personal loans suggests that the consumer’s confidence in the recovery is growing.”
Challenger banks close up the gap
The Telegraph (B3) writes that challenger banks are narrowing the gap between them and Britain’s big lenders. The article says that Metro Bank has increased its deposits by 21% in the last quarter, suggesting that its “banking revolution” is working (Telegraph, B3). The Independent (p56) also highlights the rise of Metro Bank and report that its “deposit base grew 21% in the quarter and 125% year on year to £1.96 billion while loans increased 21% and 216% to £1.2 billion”. The Independent also highlights the City minister Andrea Leadsom saying that “the Government wants to make it easier for new banks, including lowering capital requirements and making access to payment systems better”.
Read the BBA’s report Promoting Competition in the UK Banking Industry for more information.
Carney: the BoE is preparing to raise interest rates
Speaking to business leaders in Glasgow, the BoE Governor Mark Carney said that “the [UK] economy is starting to head back to normal…[and] the bank rate will need to start to rise in order to achieve the inflation target” (FT, £, p1). Mr Carney also said that rising interest rates could hit Britain’s recovery. “Rate rises will need to be slow,” he added, because households might respond to higher interest rates by “freezing” spending, according to the Times (£, p38). The Times also reports that the minutes from the Monetary Policy Committee July meeting seemed to indicate that “an increase before the end of the year was becoming a realistic prospect”.Read more
New BBA report urges Europe to go for growth
The BBA has urged Europe’s leaders to adopt a 12-point plan to boost growth in Europe and reverse years of underperformance. The report, which is picked up in the Telegraph (B5) today, urges European politicians to improve access to finance for SMEs, boost exports, strengthen infrastructure investment and enhance the EU’s global competitiveness. You can download it here.
In an article in CityAM BBA Chief Economist Richard Woolhouse says that the priority should be “rebooting” the securitisation markets. He argues that this would “free up balance sheets and allow banks to lend more to SMEs”.
HMT warned on effects of banking union
The FT (£, p4) looks at the Treasury’s publication of its balance of competences review between the UK and the EU in financial services. The report found there were “significant concerns” that the UK’s decision to stay out of the banking union could have an “unfair or damaging effect… While the ultimate impact of the banking union is hard to predict at this stage, it is likely to pose a number of challenges to the UK’s interest in maintaining a central role of influence in an internationally competitive financial market in the EU.” It also reports that respondents have urged the Government to do more to increase the number of experts seconded by the UK to the Brussels institutions.
Read the BBA’s report on the declining number of British officials in the EU institutions.
Russian sanctions make City wary
The FT (£, p2) looks at how Russian sanctions are starting to have an impact on business in the City as banks re-examine all deals and relationships with Russian companies and individuals. It quotes Chris Tattersall from Grant Thornton saying: “The long arm of the US sanctions regime reaches well outside US borders, so financial institutions in the City and elsewhere cannot afford to be cavalier. Financial institutions will be reviewing their proscribed lists and making sure they are fully up to date and applied properly throughout their systems. If they are providing correspondent banking to a bank in Russia that could provide services to a sanctioned individual, they should be concerned.”
BoE and TSC spat over leverage ratio consultation
The Times (£, p38) reports that Andrew Tyrie and Mark Carney have had a spat over the length of time the Bank gave for a consultation on the leverage ratio. The Bank rejected the suggestion that the original consultation length of five weeks broke official guidance but it has extended the deadline by four weeks, which was welcomed by Mr Tyrie. The Treasury Select Committee has warned that the Bank’s proposals may undermine the simplicity of the ratio.
Read BBA Executive Director Simon Hills on why a complex leverage ratio runs the risk of creating its own distortions.
Regulator to probe packaged accounts
The Mail (p43) reports that the regulator plans to look at how recent reforms to packaged accounts are working. It quotes the BBA saying: “It is always a good idea to consider how many of the benefits will be directly of use to you, particularly if your circumstances have changed. If you have any doubts, you should shop around.”Read more
PPI complaints halve as FOS claims “worst is over”
The number of new complaints relating to mis-sold payment protection insurance (PPI) by the Financial Ombudsman Service (FOS) declined by 57% in the past three months, reports the Times (£, p32). The FOS received 56,869 complaints between April and June 2014, compared to 132,152 in the same period last year. Complaints during the first six months of 2014 stood at 85,184 – down from 160,000 over the same period last year. The ombudsman said that they were seeing a change in the nature of grievances towards more complex cases.
US Money Market Fund rules to shake-up funds
The FT (£, p28) reports that new rules to be unveiled in the US this week are likely to affect investors holding money in $900 billion (£527 billion) of the country’s $2.6 trillion money market funds industry. The proposals, expected tomorrow, will mean some funds have to switch from a fixed $1 share cost to a floating share price. The move would make funds less like bank accounts as investors see their balances fluctuate and could lead to investors moving money to banks or unaffected market funds to avoid changes. Affected fund managers may respond by introducing new products or systems to prevent investors from moving their money.
SFO begins criminal investigation into alleged forex rigging
The Director-General of the Serious Fraud Office (SFO), David Green, has announced that he will investigate claims that traders and financial staff actively manipulated the daily fix used in London’s foreign exchange market (Telegraph, B1). The £3 trillion-a-day market uses the daily rate to determine the value of their profits and portfolios. The SFO joins international regulators who are already examining the issue and is expected to apply for “blockbuster funding” to finance their work (Times, £, p32). The news comes as the SFO suggested it would bring the first Libor trial to court next year with further cases in 2016 (CityAM, p3).
OECD finds that governments have collected £29 billion in tax crackdown
The Organisation for Economic Co-operation (OECD) released figures showing that €37 billion (£29.3 billion) had been collected since 2009 in efforts to reduce tax evasion via offshore accounts (FT, £, p8). The announcement formed part of the OECD’s newly published rules for the automatic information exchange that aims to make it harder for tax evaders to use tax havens. The proposal outlines details for how banks and governments should share tax information and have been signed up to by more than 65 countries.Read more
BBA warns that UK is losing influence in Brussels as number of key officials declines
The FT (£, p2) and the Times (£, p2) write up a research note from the BBA which warns about the loss of UK influence in Brussels as the number of British officials falls sharply. The note finds that, the proportion of British nationals employed in policy influencing roles in the Commission has decreased from 9.6% in 2004 to 5.3% in 2014 and that the proportion of British staff is even lower in those Directorates General that are crucial in drafting financial services legislation (e.g. 3.5% in DG MARKT). Worryingly, not a single person from the UK Government’s re-launched EU Fast Stream has gone on to join the EU Commission. BBA Chief Executive Anthony Browne said: “London is the financial capital of Europe and has the largest number of international banks in the world. Most of the laws that govern their activity emanate from the EU. They are strong supporters of the single market but sometimes this legislation can have difficult unintended consequences. So it is crucial for that international cluster that the UK has as much influence as possible in Brussels… The situation is bad now, but set to get much worse. Fewer than three in a hundred people passing EU entrance exams are from the UK. We are also worried that a number of senior British officials will be retiring soon, and that the UK Government is not doing enough to replace them. This cliff edge effect is real and worrying. Increasing the number of UK civil servants in Brussels will benefit politicians and businesses alike – the Government needs to up its game.”
Global bail-in rules run into difficulties
According to the front page of the FT Mark Carney is leading global discussions to put in place global proposals on bailing-in creditors of globally significant banks – a key part of ending too big to fail. This could lead to some banks having to issue billions of dollars of new bonds earmarked to carry any losses. The rules on “gone concern loss-absorbing capacity” are causing problems for the Japanese and the Chinese whose different legal and banking systems are not as compatible with the plans. The aim is to have the issue signed off by world leaders in Brisbane in November, but the details are so contentious that they may not be agreed until the summit itself.
CMA to launch market enquiry
The Competition and Markets Authority has announced that it is minded to launch a full market investigation into the personal current account and SME lending markets in the autumn. BBA Chief Executive Anthony Browne was quoted extensively in the weekend media responding to the news saying, “Banks are pro-competition – they compete for customers every day. Last month we published a series of ideas to help new banks set up and smaller players to grow. We hope these suggestions will be taken up by regulators and politicians.” In his blog, BBC business editor Kamal Ahmed looks at whether the CMA review could lead to the end of free banking. He concluded, “Now the CMA has opened this Pandora’s box, it is going to be very difficult to nail it shut again.”
Free schools falling behind on financial education
BBA research has uncovered concerns that the Government’s flagship free schools are much less likely to teach financial education than the average secondary school. The Mail on Sunday (p86) quoted Anthony Browne saying, ‘It is hugely disappointing that the Government’s flagship free schools aren’t teaching pupils how vital it is that they stay on top of their finances. We would like to urge the new Education Secretary Nicky Morgan to make sure that at least the basics of budgeting, borrowing and saving are taught in every school.”
Which? calls for customers to shop around on overdraft charges
Research by Which? suggests that consumers could save money on overdraft charges by shopping around. The Sunday Express quoted BBA Executive Director Eric Leenders who said that banks help customers to compare charges with itemised statements and online calculators and that consumers had recently saved nearly a billion in reduced overdraft charges. (B3)Read more
CMA consulting on market investigation
The Competition and Markets Authority (CMA) has announced this morning that they will be consulting on a provisional decision to conduct a market investigation into personal current accounts and small business banking. The decision follows the conclusion of market studies into these two areas, with the SME banking study being undertaken as a joint project with the FCA. As part of the consultation the CMA will be inviting views on recent developments in the banking sector, as well as on the ‘in principle’ proposals to remedy suspected problems put forward by some of the main high street banks.
Many of the newspapers pre-empted the announcement, with the FT (£, p1) suggesting that the consultation will last at least 18 months.
BBA Chief Executive, Anthony Browne said: “All the banks will co-operate fully with this review and any subsequent investigation. There are substantial changes currently underway across the banking industry to strengthen competition – which improves choice and service for customers. We welcome the fact that the CMA has recognised that there have been a number of recent improvements for customers.
“Banks are pro-competition – they compete for customers every day. Last month we published a series of ideas to help new banks set up and smaller players to grow. We hope these suggestions will be taken up by regulators and politicians.”
On the eve of the announcement Business Secretary Vince Cable wrote to RBS chief executive Ross McEwan asking him to speed up the divestment of challenger bank Williams & Glynn in order to boost competition (Times, £, p40).
ECB give two week deadline
The European Central Bank (ECB) has given banks with holes in their balance sheets a two week window this autumn in which they can plug the gaps (FT, £, p8). Yesterday, the regulator published refreshed plans to carry out stress tests – to include both baseline and adverse scenarios – on 128 of Europe’s biggest banks, who will then receive the results in October and be granted a fortnight to produce plans to cover any shortfalls over a six month period. The ECB has stressed the need for tests to be rigorous as previous tests failed to uncover all flaws.
Handelsbanken opens fifth regional bank
Swedish lender Handelsbanken is to open a fifth regional bank covering Yorkshire and the north east of England (CityAM, p11). The firm currently has 177 branches across the UK and reported yesterday that it increased its lending by 12% to £12.8 billion in the second quarter of the year. The bank’s UK chief executive, Anders Bouvin said: “We will continue to invest in traditional, local banking to meet the demand we see from businesses and individuals across Britain.”Read more
CMA poised to make banking industry announcements
The Competition and Markets Authority (CMA) is expected to publish the findings of its report into competition in business banking and personal current accounts (Guardian, p25). A provisional decision on whether to conduct a full investigation is expected on Friday, with a final decision not due until this Autumn.
For further information on how to make the banking industry more competitive please read the BBA’s Promoting Competition in the UK Banking Industry report.
Bank account switching up 16 per cent
Current account switching numbers are up by 16 per cent in the first half of the year in comparison to the same period in 2013 (CityAM, p8). According to the Payments Council, 600,000 customers used this new service between January and June this year. The Mirror (p51) highlights the CEO of the Payments Council Adrian Kamellard saying: “The account switch service set out to remove the fear factor from switching – and these results suggest that it is doing exactly that.”
Independent party to run the gold benchmark
The four banks that run the gold benchmark are seeking an independent administrator to oversee the market (FT, £, p28). According to the FT, the banks said they would seek proposals with “a view to appointing a third party to assume responsibility for the gold fix”. The Times (£, p36) quotes the London Gold Market Fixing Limited saying that the review of its procedures conducted with the assistance of Slaughter & May, a City law firm, had concluded that they were “broadly aligned” with international standards for benchmark setting.Read more
FSB proposes 15 reforms to forex market
The Financial Stability Board (FSB) has proposed a series of reforms to global forex markets to reduce the risk of collusion in the wake of alleged manipulations, reports the Times (£, p40). The changes to the £2.9 trillion daily market include widening the one-minute “window” used by traders to set forex benchmarks and the use of alternative benchmark methodologies. The FSB suggested that the structuring of the market helped create the impression of front-running with dealers “trading ahead of the fix”. Responding to the proposals, a BBA spokesman said: “It’s vital that we have a system that is robust and punishes any wrongdoing while being sensitive to the need to continue to attract global banks and investors to the UK”.
Dodd suggests consolidating US prudential regulators
Chris Dodd, one of the architects of the US Dodd-Frank legislation, has revived the prospect of establishing a single US prudential banking regulator (FT, £, p8). The former US senator had previously complained that the number of organisations overseeing the American financial system was excessive. Only one of these four institutions was abolished in 2010, leading to concerns that some issues could “slip between the cracks” of the three regulators. At an event marking the four-year anniversary of the signing of the legislation, Mr Dodd said he would like to have created a single prudential regulator and that the idea still had “life”. Read the BBA’s Adam Cull report Beyond Boundaries on how to drive regulatory coherence.
Carney warns of mortgage risk as expectations of interest rate rise grows
A number of papers report comments made by Bank of England Governor Mark Carney on mortgages and interest rates during his monthly appearance in front of the Treasury Select Committee yesterday (FT, £, p3). The Governor rejected the Bank of International Settlement’s recommendation that the Bank usher in a “swift return to normal interest rates”, suggesting the advice came from “a vacuum… outside political and economic reality” (Telegraph, B1). Dr Carney added that his warning that rates could rise faster than expected was designed to “shake up the markets”. Elsewhere, Dr Carney suggested the Bank could consider restrictions on the length of a loan in response to the growing number of people who could be left exposed by long-duration mortgages.
FCA to cap payday loan charges
The Financial Conduct Authority has outlined proposals to cap the overall cost of a payday loan at 100 per cent of the amount borrowed. The move could reportedly cost the industry £420 million in lost revenues and save a borrower £193 a year in charges, writes the Guardian (p17). The cap is set to apply to the £2.5 billion annual market from January 2015. The FT (£, p4) reports that the regulator’s move could lead to banks replacing the sizeable number of payday lenders expected to exit following the new rules.
Cabinet reshuffle concludes as Juncker becomes Commission President
A number of papers report the reshuffle of Conservative members of the Government and confirmation of Jean-Claude Juncker as the European Commission President. Matt Hancock has replaced Michael Fallon, who becomes Defence Secretary, as Minister of State for Business, Innovation and Skills and Energy and David Gauke is the new Financial Secretary to the Treasury – taking his tax portfolio with him – and replaced by Priti Patel as Exchequer Secretary. The FT (£, p1) suggests the reshuffle reflects a move to push harder for EU reforms by the Prime Minister. Meanwhile, Mr Juncker outlined a “federalist” agenda for his time in the Commission including a £300 billion fund for infrastructure investment (Times, £, p31). Read BBA Head of UK Government Affairs Rebecca Park’s blog on why this reshuffle isn’t just about women.Read more
Capital markets key to Eurozone recovery
In the FT (£, p13) Hugo Dixon argues that non-bank finance through a “capital markets union” is key to stimulating EU growth. He states that the UK would profit as the main supplier of alternative finance as it is “home to the continent’s largest capital market”. The author writes that the EU is much more “bankcentric” than the US, and that Europe would benefit from alternative sources of finance such as corporate bond issues, peer-to-peer lending and venture capital. Mr Dixon adds that the market should be transparent and use “targeted regulations to ensure…stability and probity”, and welcomes the move by the ECB and Bank of England to revive the securitisation market.
IMF concern over Eurozone
The International Monetary Fund has warned that the Eurozone’s economic recovery is weak and uneven and that any new shocks could “sour financial market sentiment [and] halt the recovery” (Times, £, p39). The organisation also called for the ECB to be ready to use quantitative easing or an asset purchase programme should inflation remain low, adding that “a persistent failure to meet the inflation target could undermine central bank credibility (Telegraph, B1).
The BBA will publish a paper later this month suggesting ways to support growth in the Eurozone.
Cabinet reshuffle begins
A number of papers lead with yesterday’s reshuffle which saw William Hague stand down as Foreign Secretary to be replaced by former Defence Secretary Philip Hammond. Mr Hague – who is now leader of the House of Commons – along with former Science and Universities Minister David Willetts will retire as MPs at the 2015 General Election. Another casualty was former Environment Secretary Owen Paterson. The majority of new appointments will be announced today.Read more