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 bank profits dive down league tables
According to a survey by The Banker reported in the Independent, (p51) UK banks’ share of global profits has shrunk from 11% to 2.4% since the onset of the financial crisis. Chinese banks top the list, followed by the Americans, with African banks making the highest returns on capital of 24 per cent – double the average return for the rest of the globe and far exceeding average returns of only 4% in Europe. The article reads: “Overall, the UK stands in eighth place globally when it comes to bank profitability.”
Rise of the challenger banks
The Sunday Times (£, B1) looked at the rise of the challenger banks, reporting that they had doubled their gross mortgage lending between 2011 and 2013. The raft of new entrants to the market is also noted in the FT (p18). The newspaper writes: “During the past two weeks, Tesco Bank has entered the current account market; a big peer-to-peer lender has teamed up with Santander UK and Marks and Spencer and Sainsbury’s Bank have expanded their services as they try to break the dominance of the country’s biggest lenders.”
BBA voices concerns over account aggregation services
The Sunday Telegraph (B2) looked at the account aggregation services in the UK which pull all your bank, energy and investment accounts into one place. It quoted the BBA saying that it recognised the value of these services but also had “real concerns” about sharing bank details. “It’s like handing over the keys of your front door to a stranger,” a BBA spokesman said. The BBA would prefer aggregator services that do not require customers to handover account passwords, adding that banks are looking into such technology.
Business confidence at 22 year high
According to the Lloyds Bank Business in Britain report,business confidence has reached its highest ever level since the survey began in 1992, reflecting rising expectations for orders, sales and profits in the next six months. Confidence has also grown across all regions.Read more
FPC limits mortgages in its first foray into macro-pru
The Bank of England’s Financial Policy Committee (FPC) has announced new “macro prudential” policy measures designed to prevent a credit-fuelled housing boom from leading to high levels of household debt and financial instability (FT, £, p1). The FPC recommended capping the proportion of mortgages a bank can lend above 4.5 times loan to income ratio to 15 per cent of its total lending book. It also introduced a new “stress test” on affordability for borrowers, which will check their ability to make repayments if interest rates climb by 3 per cent. BBA Chief Economist Richard Woolhouse appeared on CBNC yesterday morning trailing the announcement and was subsequently quoted in the International New York Times, where he said the moves were a “cautious and clever intervention… to ensure indebtedness does not get out of control”. He also told: Reuters: “I don’t think it will bite on the economy in the short term but it’s a backstop that’s been put in place”. Read Richard Woolhouse’s blog responding to the new measures here.
Elsewhere, the Telegraph reports that the Chancellor has announced that the Government would not underwrite mortgages larger than 4.5 times income under its Help to Buy scheme (B1). The FT adds that a future potential rise in interest rates to three per cent, as proposed under the “stress test”, could nearly double the amount households would have to pay in interest payments (£, p3).
Juncker set to become new Commission President as EU leaders meet in Brussels
Leaders of all EU member states are in Brussels to approve the next candidacy for European Commission, expected to be announced as Jean-Claude Juncker. David Cameron has openly opposed Mr Juncker’s appointment stating, “They are contemplating choosing someone who I think will struggle to be the voice of reform and change in Europe” (FT, £, p2). The Guardian (p10) adds that Mr Cameron has warned that supporting Mr Juncker “could have consequences”. The Times (£, p8) writes that the UK’s Permanent Representative to the EU Ivan Rogers warned the Prime Minister to concentrate earlier on attempts by the European Parliament to dictate the next commission president.Read more
RBS says it will stay neutral on the Scottish referendum
RBS chairman Sir Philip Hampton used his keynote speech at the bank’s annual general meeting yesterday to calm shareholders and clients in the event of a potential “yes” vote in the Scottish referendum. If voters chose to split the union, Sir Philip said that a great deal of “uncertainty” would be generated and the bank would have to cover “new risk disclosures such as credit rating, tax and regulation” (Times, £, p43). Sir Philip added that: “Excessive pay and bonuses had helped the banking crisis” but said that “the situation is much better now than it was before the crisis” (Independent, p61).
At the same meeting, chief executive Ross McEwan suggested that banks could be trusted to control their own mortgage lending, stating: “We don’t think there’s a problem out there, our preference is that we make a move” (Telegraph, B1). McEwan’s comments follow the BBA’s mortgage data release which suggested the new tests introduced by the Mortgage Market Review were working.
Please read the BBA’s chief economist Richard Woolhouse’s blog on the latest mortgage data here.
Ring-fencing set to allow options and trade finance
The FT (£, p2) writes that business customers of more heavily regulated retail banks will be able to sign up for options and trade finance, under final legislative proposals published by the Government yesterday. The Treasury’s initial draft ring fence legislation suggested that these financial institutions would be able to offer small and medium-sized companies some derivatives, but not options. The BBA and other business groups were concerned that excluding these products from the ring-fence would undermine smaller firms looking to grow overseas. A spokesman for the Treasury said: “The Government has committed to […] separate the bank branch from the trading floor and today is an important step towards meeting that commitment.”
BBC News reports that the Government will introduce new legislation to allow banks to start using “cheque imaging”. Bank customers will be able to take a photo of the cheque they have received and pay it into their accounts by using an email service or a mobile banking app. Barclays’ director for transformation Steven Roberts said: “This is an opportunity to move cheques into the 21st century, to reduce costs and make banking more convenient for customers.”
Some apps offered by banks have already had more than a billion uses. In a single year the number of mobile phone banking transactions has doubled. This is a much faster take-up than internet banking experienced in the last decade. For more information about the use of technology in banking, please read the BBA’s Way We Bank Now report here.Read more
Leadsom suggests government could ease regulation on challengers
The Telegraph (p3) and others report on comments made by the Economic Secretary to the Treasury, Andrea Leadsom, at the BBA’s Competition Conference yesterday afternoon. Ms Leadsom remarked that “competition should always trump regulation” and suggested that the Government would consider proposals to bring down the regulatory hurdles currently facing “challenger banks”. She told the conference: “The focus on more regulation will ease off and the focus on making it more manageable for smaller banks will increase. Reforms should be as much about competition as safety and stability”.
On Tuesday the BBA published a new report on competition entitled Promoting competition in the UK banking industry and the report’s author, BBA Strategy Director James Barty wrote a piece for BBA insight and CityAM.
On the BBA website Joseph Dickerson, Managing Director & Senior Research Analyst for UK & European Banks at Jefferies International Ltd, gives another perspective on competition and challenger banks.
Latest lending figures show heat coming out of the housing market
Many of the papers examine the BBA high street lending figures released yesterday morning, with most noting the cooling of the mortgage market. The Times (£, p39) said that some would see the cooling as evidence that the Bank of England’s Financial Policy Committee (FPC) should refrain from taking measures to curb mortgage lending when they meet tomorrow. The Telegraph (p3) attribute the slowdown to the introduction of the Mortgage Market Review, saying tighter controls on lending could be responsible for taking the heat out of the market.
Read BBA Chief Economist Richard Woolhouse’s blog where he considers potential actions by the FPC tomorrow.
Commenting on the high street lending statistics, the BBA Chief Economist said:
“Our figures indicate that the heat appears to be coming out of the housing market. These are the first mortgage approval figures we have seen since the introduction of the Mortgage Market Review, so it is significant they have fallen for the fourth month in a row. This is being driven by a drop in remortgaging and people borrowing against the value of their homes.
“There has also been a welcome expansion in business lending this month bolstered by borrowing from the energy sector.”
Both the i (The paper for today) (p42) and the Evening Standard (p44) noted the drop in the amount deposited in ISA savings which were down a third on the same period in 2013. The articles suggest that many savers will be holding off making deposits until more generous allowances, announced by the Chancellor in this year’s Budget, are introduced in July. The leader column in the Telegraph (p2) questions what savers can expect in terms of returns from the “NISA” .
Carney described as “unreliable boyfriend”
The Governor of the Bank of England has been described as behaving like an “unreliable boyfriend” and as “dovish” about the timing of a likely interest rate hike. Pat McFadden MP, a member of the Treasury Select Committee which Mr Carney appeared in front of yesterday, made the remarks following the Governor’s unexpected comments responding to new data showing a contraction in real wages. Mr Carney said that this change suggested to him that the economy had “more space capacity than previously thought” (Independent, p57). The Times (£, p42) recalls previous criticism of the Governor’s forward guidance by Conservative MP Jesse Norman: “If interest rates are supposed to be determined in this very direct way by data, then as soon as the data changes, the [rate-setting] Monetary Policy Committee’s view changes, you make a speech and monetary policy changes. How can that be a sustainable basis for monetary policy?”.Read more
Banking on competition (1) – BBA report calls for level playing field for challengers
In a new report: “Promoting Competition in the UK Banking Industry”, the BBA has called on regulators and the Government to make a series of changes to make it easier for new banks to set up and smaller banks to grow (Reuters). The Telegraph (B1) reports that the BBA has set out reforms to level the playing field over capital, funding costs, access to the payments system and proportionality of regulation. The FT (£) quotes Andrew Salmon, chief operating officer of Arbuthnot Banking Group, who said that current regulations were a “glass ceiling” for smaller banks. In the Mail (p63) BBA strategy director James Barty argues “It’s vital that we don’t treat all banking markets as the same and introduce rules, regulations and costs that smother changes that are already driving competition.”
In an op-ed for CityAM (p20) James argues that technology is creating the right conditions to allow the easyJets and the Ocados of the banking world to flourish. “The job of the authorities is simply to nurture that competition,” he writes.
Competition (2) HMT announces account comparison tool
The Telegraph (B1) reports that at the BBA’s competition conference today (sign up for free here) Economic Secretary to the Treasury Andrea Leadsom will today announce that Britain’s biggest banks have agreed a new industry standard that will allow customers to compare the value of their current accounts online. From the end of March 2015, bank customers will be able to download a year’s worth of data from their current accounts into a single file that can then be quickly read by online tools. The system will then choose the best bank account from a broad range.
Eric Leenders, the executive director in charge of retail at the BBA, said: “The BBA has worked closely with software developers, the Treasury and the banks to develop a simple, secure, spreadsheet based current account comparison tool that helps customers to manage their money. Midata is all about giving customers more power to make better financial decisions and to shop around to get the best deals.”
BBA statistics show further drop in mortgage approvals as MMR starts to bite
The BBA’s latest high street banking statistics are published today. They show that mortgage approval volumes weakened in May and were 3.5 percent lower overall than in the same month of last year. The new mortgage rules appear to have impacted on volumes, but more so for re-mortgaging and other secured loans than for home purchase approvals, where volumes were similar to April.
Commenting BBA Chief Economist Richard Woolhouse said: “Our figures indicate that the heat appears to be coming out of the housing market. These are the first mortgage approval figures we have seen since the introduction of the Mortgage Market Review, so it is significant they have fallen for the fourth month in a row. This is being driven by a drop in re-mortgaging and people borrowing against the value of their homes. There has also been a welcome expansion in business lending this month bolstered by borrowing from the energy sector.”
Most of today’s papers cover the Bank of England’s credit conditions survey which found that banks are pre-empting expected curbs by the Bank by restricting the number of high loan to income mortgages they are offering. (Times, £, p43)Read more
Bank jobs grow outside of London
The Telegraph (B5) reports figures released by the BBA which show that banking jobs in towns and cities outside of the capital such as Cardiff and Manchester increased between 2009 and 2012. BBA CEO Anthony Browne said: “These figures shatter the myth that only a narrow part of Britain benefits from banking. It’s heartening that as the recovery takes hold there are good grounds to suggest that communities across Britain will benefit from jobs created by this vital industry.”
Challenger banks on the rise
The FT (£, p19) notes that the “wave of challenger banks entering the UK market” is expected to boost regional lending as many of them choose to base themselves outside of London. Anthony Thompson, former chairman of Metro Bank and founder of the new online bank Atom told the paper: “The future is not regional banks – the future is regionally-based banks”.
A number of weekend papers reported on the sale of 35 per cent of TSB’s shares. The FT (£) writes that the success of the TSB float will mean that other challenger banks “are likely to be encouraged to press ahead with their listing plans”. Virgin Money shareholder Wilbur Ross told the Evening Standard that he can “hardly wait to take Sir Richard Branson’s bank public”.
BBA warns over closer Eurozone integration
The FT (£, p2) cites a letter from the BBA written to the Prime Minister and Chancellor raising concerns for the City that Eurozone members could soon use their majority to set rules that would “fracture the integrity of the single market”. BBA CEO Anthony Browne urged Mr Cameron to use this week’s EU summit to highlight “important political messages” about maintaining the unity of the EU.
Central Bank to consider housing limits
The Times (£, p40) writes that the Bank of England will outline limits for banks lending at more than four or five times a borrower’s income and stricter affordability checks in its Financial Stability Report which is published on Thursday. The Mail reports that Governor Mark Carney is expected to make the ‘7 per cent test’ – which checks if customers could cope with rate rises – mandatory or impose an even higher one. However, analysts at BNP Paribas tell CityAM (p3) that any decision may be put on hold until September “amid a few signs that the housing market is already cooling”.
Good customer service levels for banks
According to KPMG’s Customer Experience Barometer, 40 per cent of global responses said that they were satisfied with their experience at banks, second only to e-retailers, writes CityAM (p7). The report analysed 5,000 responses from customers across 160 banks, general and life insurers, telecommunications and utilities companies.Read more
Bank tightens supervision
The Bank of England has said it could introduce limits on how much a bank’s balance sheet can grow as part of a review of its risk and governance monitoring. Creating stronger oversight committees and appointing external parties to watch over boards are also measures being considered, according to a statement from the Prudential Regulation Authority. The supervisory arm of the BoE said that they will be looking out for banks who are failing to conduct their business in a “safe and sound way” and are prepared to step-up supervision if necessary. (Times, £, p46 and Telegraph, B5).
New technology means customers can deposit cheques remotely
Barclays have introduced new technology that allows customers to pay in cheques by taking a photograph via a special app. From the start of May customers of the bank will be able to pay in up to 200 cheques up to the value of £500 and the money will be deposited instantly (Times, £, p49).
Next month the BBA will be launching a new report on The Way We Bank Now, following on from our recent study of how consumer use of technology has changed everyday banking.
Get ready for rate rises
In an interview with the Guardian (p31), Ian McCafferty – one of four external members of the Bank of England’s Monetary Policy Committee – said that the Bank “should not hold back too long” on raising interest rates. Mr McCafferty added that it was important for the Bank to point out that borrowing costs might rise sooner than expected, telling the paper: “Were we to have to go early – and that will depend on how the economy performs over summer and autumn – I think it would have been damaging if it was portrayed as a surprise”.
International regulators concerned over Cable’s SME lending plan
An article in CityAM (p3) suggests that global regulators are concerned by Vince Cable’s plans to use the British Business Bank (BBB) to get around capital rules. Cable wants the BBB to guarantee a number of small business loans in order to encourage banks to lend more. An unnamed regulator is quoted saying: “…this recent crisis has once again demonstrated that banking crises are extremely costly: not only to taxpayers, when public funds are used to bail out banks, but lost in national wealth”.
Customers may pay for bank account switching
Andrea Leadsom, the Economic Secretary to the Treasury, has said that introducing an instant bank account switching system might end free bank accounts for millions of customers. Ms Leadsom told the Telegraph (p6) that the cost of introducing such a system could lead to customers “paying for your banking”. Qualifying her comments, she added: “I don’t think it needs to mean the end of free, while in credit [banking] but at the same time, I would imagine that it would lead to a variety of methods of paying for your banking.” A total of 800,000 have reportedly used the new Current Account switching service since it was launched last September. Business Secretary Vince Cable commented that “the costs of this service are very considerable” and also said there was not “a great deal of momentum” to “fundamentally change the system.
Credit card borrowing rising
Figures released by the BBA yesterday show that credit card borrowing has been rising at the fastest level since pre-crisis years. Lending has risen up to 5.5 per cent in the last 12 months, a pace of growth last seen in 2008. The figures also show that total outstanding balances on credit cards have gone up by £1.5 billion in a year – to a total of £57.7 billion, the highest level since 2011 (CityAM, p15).
The BBA’s chief economist Richard Woolhouse said:“Our figures provide further support to the case that British consumers are becoming more confident about the recovery. There has been a real fall in the proportion of credit card balances incurring interest. That is now lower than we’ve seen for a number of years – suggesting that more customers are borrowing wisely without incurring charges. Providers are offering useful products that give people more control over how they spend their money.”
Please read BBA’s chief economist Richard Woolhouse’s blog on the latest credit card borrowing figures here.
The BBA’s full press release can be read here.
Vince Cable: Regulation blocks SME lending
Regulation that forces lenders to hold more capital against business loans than against mortgages leads to lower SME lending, warned Business Secretary Vince Cable yesterday. Mr Cable said that: “Despite reassuring messages from banks about ‘bottoming out’, net lending to SMEs continues to fall relentlessly” (Times, £, p43). The Guardian (p27) highlights the Business Secretary saying that: “Banks pump out lending in the mortgage market, while lending to small businesses is restricted. This directly stems from the rules on which the regulatory model is based and has a very damaging impact.”
Bank of England keeps interest rates on hold at %0.5 per cent
The Guardian (p27) and the Telegraph (B1) report that the City remains unsure about the timing of an interest rate rise after the Monetary Policy Committee decided yesterday to keep rates on hold at 0.5% – MPC meeting minutes reveal. Responding to the MPC’s latest decision, the newly appointed Bank of England chief economist Andy Haldane said that the Bank’s interest rate dilemma was a choice between going on the “back foot” and waiting, or going on the “front foot” and making an earlier decision to push up the cost of borrowing. In response, Business Secretary Vince Cable hinted that the Bank should use new powers to restrict buyers’ access to mortgages, setting a maximum loan-to-income ratio (Telegraph, p1).
Bank of England appoints China’s “big four” bank as currency clearing hub in London
BBC News writes that China’s Construction Bank has been appointed as the London renminbi (RMB) clearing house. Bank of England Governor Mark Carney said that the clearing house deal was an “important milestone”, because the Chinese bank would “play a valuable role in facilitating greater use of the RMB for trade, investment and other economic activities in the UK”.
London is home to 251 foreign banks, more than any other ﬁnancial centre in the world and is the largest banking centre in Europe by assets. For further information about the number of overseas banks in London, please read the BBA’s Benefits of Banking report here.
City Minister pushes for inclusion of Account Number Portability in Conservative manifesto
Speaking to the FT (£, p3), new City Minister Andrea Leadsom discussed the prospect of introducing Account Number Portability to increase current account switching and competition in retail and small business banking. The new payments regulator is currently undertaking a cost-benefit review of the measure, which will inform the Minister’s position on the measure. Ms Leadsom suggested the ability to immediately switch accounts was a “game changer”. The FT quotes BBA Chief Executive Anthony Browne saying: “There isn’t a huge demand for changing current accounts, nor are there any problems with seven-day switching, which is working well”. A total of 800,000 have reportedly used the new Current Account switching service since it was launched last September.
Commenting on the debate, the FT’s Jonathan Guthrie (£, p16) argues that the difficulty of switching between banks “tends to be overstated” and customers do not switch because “free-if-in-credit” current accounts mean “there is little apparent economic incentive”.
House prices soar but inflation falls as PAC attacks Help to Buy
A number of papers report the latest figures from the Office of National Statistics (ONS) showing that typical houses price in Britain have climbed to ten times the average salary as a result of a lack of supply and rising demand (Telegraph, p1). However, the findings do not reflect the stricter lending rules introduced via the Mortgage Market Review which has anecdotally led to a reduction in lending (Mail, p34). The news comes as the Public Accounts Committee criticised Help to Buy in a report, arguing: “[the Government] has committed to spending up to £10 billion on supporting Help to Buy without establishing whether it represents the most effective way of using taxpayers’ money to achieve its objective” (CityAM, p2).
Elsewhere, ONS figures show that the Consumer Price Index fell to 1.5 per cent in May, its lowest in nearly five years. The announcement could be a dampener on Mark Carney’s suggestions that the Bank could raise interest rates “sooner than markets currently expect”, reports the Independent (p43).
Archbishop argues that banks are still “too big”
Justin Welby, the Archbishop of Canterbury, used a speech to the New City Agenda group in the House of Lords to argue that the largest banks would still require public subsidies if they failed, writes the FT (£, p2). The former member of the Parliamentary Commission on Banking Standards argued: “We need an international system with a set of principles that all regulators can agree to.” Adding the ring-fencing of retail and investment banking operations was important to avoid “cultural contamination”. Commenting on the issue of “too big to fail”, BBA Chief Executive Anthony Browne said: “A huge amount of work has gone into making the banking sector safer in recent years. The industry is determined that taxpayers’ money is never again used to bail out banks.“Read more
Legal dispute over EU banking reform
Legal advice given to EU finance ministers has cast doubt over whether the UK will be able to secure a derogation from the EU’s banking structural reform proposals, known as the Liikanen reforms. The opinion given by the European Council’s legal service states that Brussels is “going beyond the law” in its plan to exempt the UK’s ring-fencing reforms from EU legislation, according to the FT (£). Council lawyers have concluded that the commission’s derogation mechanism “is not compatible with the legal basis of the proposal”. They suggest that the derogation should be removed, or remodelled to comply with conditions which allow exemption from EU regulations.
US to leave out financial services from TTIP
US officials have qualified their decision to exclude financial services from the US-EU Transatlantic Trade and Investment Partnership (TTIP) by stating that it “would only complicate the regulatory landscape unnecessarily”. Michael Froman, the US trade representative said: “We have made clear that we are not open to creating any process designed to reopen, weaken or undermine implementation of Dodd-Frank”. However the FT (£, p8) has seen leaked documents which suggest that the EU will increase pressure on the US by “threatening to exclude any discussions on financial services” unless the US agree to put regulation on the agenda.
German concern over new ECB voting system
Frankfurter Allgemeine Zeitung reports on the new ECB voting system which comes into effect next year that will see Germany not be able to vote on the ECB’s Governing Council for one out of every five months. Both the Christian Socialist Union and Alternative for Deutschland have highlighted that this could lead to a situation where Germany might be unable to vote on a decision on Outright Monetary Transactions, which are a divisive issue in German politics. As a result, the Germans may ask for an amendment to the voting system.
London to grow as renminbi trading centre
During his visit to the UK, Chinese premier Li Keqiang will announce measures that could improve the City’s bid to become the leading offshore renminbi trading centre, writes the Wall Street Journal Europe (£). Mr Li is expected to confirm China Construction Bank Corp as London’s first clearing bank for the currency, whilst announcing an increase in the size of the programme that allows asset managers based in the UK to directly invest in Chinese shares.