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.
More change at the Bank of England
The FT (p4) reports on George Osborne’s overhaul of the Bank of England’s Monetary Policy Committee (MPC), bringing in US academic Kristin Forbes from the Massachusetts Institute of Technology to replace Ben Broadbent who will become deputy governor. The Times (p47) writes that the appointment of Ms Forbes – a former economic advisor to George Bush – breaks a four year period without women on the committee. George Osborne spoke enthusiastically of the appointment, saying: “Dr Kristin Forbes is an economist of outstanding ability with real practical experience of policymaking.”
Lending to first-time buyers and landlords up on last year
The Bank of England rejects speculation of a housing bubble inthe Times (p44) as the Council of Mortgage Lenders’ figures published on Thursday show that in March lending to buy-to-let landlords has grew 69 per cent on the year before and first-time buyers took out 24,400 loans during the month (Telegraph). The overall rise in mortgage lending was 17.4 per cent in the year to March, meaning in that in total 50,500 new mortgages were taken out.
Bitcoin launches bank account
Circle, the American group that stores bitcoins, is launching a new “bank account” today in a bid to attract customers who had previously been wary of the virtual currency due to associations with people betting on its value. The account, which converts normal currency into bitcoins and allows users to store it remotely, means that they can make payments and spend money with merchants who accept the currency. The customer can at any time withdraw their money and reconvert it into their local currency and transfer it to a bank. Circle has said that it will not charge for its account and will provide free insurance on deposits (Times, p46).
EU-US trade deal to exclude financial services
The EUobserver reports that the EU-US trade deal, expected to be completed by senior officials before the end of 2015, will not include financial services. The US ambassador to the EU, Anthony Gardner seemed to rule out discussions harmonising financial regulation, telling Europe’s trade commissioner Karel de Gucht: “We don’t see the need for financial services to be part of TTIP [the Transatlantic Trade and Investment Partnership].The [US] Treasury has been very clear on this and I don’t see much chance of them changing their position.”Read more
BBA response to the PRA’s clawback consultation process
In a response to proposals from the Bank of England’s Prudential Regulation Authority to clawback bonuses up to 11 years after they have been awarded, the BBA said that although it supports a clawback policy “these measures are going beyond what could be considered as fair and reasonable”. The response also states that “the BBA does not consider that clawback should be applied to an employee merely where there is ‘reasonable evidence’ of misbehaviour or material error that is untested – to do so would cut across the principle of natural justice”. The BBA is quoted in the FT (£, p15) saying clawback would be “a convoluted process, particularly where the firm does not already have the flexibility to vary existing contracts…some employees will acquiesce to the introduction of retrospective clawback and others will not consent”. CityAM (p5) adds that although the BBA supports the broader policy, it could be “legally difficult to enforce and could end up costing more in legal fees than the amount clawed back”.
Bank of England publishes its Inflation Report
Although the labour market release from the ONS shows the UK is creating jobs at the fastest rate on record, Governor Mark Carney stated yesterday that interest rates will stay low. The FT (£, p1) quotes Carney saying the UK economy has “only just begun to head back towards normal”. The Bank’s forecast expects the economy to grow 3.4 per cent this year, recovering faster than other advanced countries. The Telegraph (B1) highlights that the level of UK unemployment fell from 7.2 per cent to 6.8 per cent over the last quarter, adding that the latest Inflation Report expects unemployment to drop to 5.9 per cent by the beginning of 2017.
BBA’s Chief Economist Richard Woolhouse’s blog on the Inflation Report is available here.Read more
Deputy Governor states that more is to be done to resolve “Too Big To Fail”
Bank of England Deputy Governor Sir Jon Cunliffe has warned that the banking landscape “must and will change” in order to ensure that the taxpayer is no longer forced to bail out a “too big to fail” bank. (Times, £, p41). Although Sir Jon recognised that progress had been made, he stated that banks’ balance sheets are not yet at the required levels to withstand another financial crisis. He noted that the current requirements on risk-weighted capital went only some way in making banks safe, adding that “the risk can become more pronounced in boom times when asset prices are rising”. (Telegraph, B4). In addition, Sir Jon told the industry event that the central bank is considering plans to increase the leverage ratio above three per cent, adding that the Bank “expects to publish its conclusions towards the end of the year”.
Bank of England to publish latest Inflation Report
The Bank of England is to publish its quarterly Inflation Report today, with the Times (£, p41) stating that Governor Carney must “attempt to reclaim control of the debate over rate policy”. The paper adds that the last report promised gradual and limited rate rises once they began to increase, however markets are “predicting a quarter-point rise every three months until early 2016”. Indeed, the Telegraph (B2) expects the Governor “to endorse market expectations of a rate rise in the first quarter of 2015”. The Independent (p51) adds that that the expected drop in unemployment to 6.8 per cent – also to be announced this morning – will “increase the clamour to raise rates”.
Shadow Chancellor warns over Help to Buy
In an interview with the FT (£, p3), Ed Balls has warned the Chancellor not to “wash [his] hands of responsibility for balancing the housing market”, calling for Mr Osborne to rein in the Help to Buy scheme in London and to boost the supply of housing across the country. The Chancellor has told Bank of England officials to “use the tools that I’ve given them”, however Mr Balls has raised concerns that the Bank is “still trying to make sense of its new structure”, adding: “The danger when you have a large overlap [between the MPC and FPC] is that people think it’s someone else’s responsibility.” Meanwhile the Telegraph (p14) cites a report by Countrywide which reveals that the cost of renting relative to buying is “at its cheapest since 2006”.Read more
Bank of England expected to cool housing market and raise interest rates within a year
Economists and investors are calling on Governor of the Bank of England Mark Carney to use the Bank’s quarterly inflation report to set out plans to cool the housing market and tackle the UK’s weak productivity performance despite rising employment (FT, £, 3). The central bank is expected to set out whether it will use macroprudential policies on mortgage lending when its Financial Policy Committee meets in June. The inflation report is also expected to explain how changes to “forward guidance” on interest rates will savers and borrowers.
Former BIS adviser attacks “revolving door” between government and lobbyists
Lawrence Tomlinson, the former entrepreneur in residence at the Department for Business, Innovation and Skills and author of the Tomlinson report on business lending, has criticised the role of lobbying organisations in supporting government policymaking (Telegraph, p4). Mr Tomlinson was specifically critical of the role of the BBA, where two of its 70 staff work full-time on government affairs. A spokesman for the BBA said: “Our government affairs team do work hard to represent the interests of our members and their customers to policymakers, but it is hard to see how anyone could think we are better resourced than five lobby groups that speak for the interests of the business community.”
ECB lessen demands on banks to ensure they meet stress test deadline
Reuters is reporting that the European Central Bank (ECB) is no longer asking some of the 128 euro zone banks it directly supervises to provide difficult-to-obtain details, such as allowing banks to produce data on smaller numbers of loans, to ensure the results of the inaugural stress tests are published in October. Andrew Parry, London-based chief executive of fund manager Hermes Sourcecap, said: “There is a danger that by asking for too much detail on loans, the ECB is unable to see the wood for the trees as they get overwhelmed by the density of the data, (but) credibility remains the key watchword on this review.” Another source suggested that the ECB accepts that while some of this data is not necessary to value the loans, its requests are more prescriptive and onerous than previous reviews.Read more
Controversy over plans to allow HMRC to raid people’s bank accounts
The row over government plans to give HMRC the power to take money from people’s bank accounts without their consent continued over the weekend with widespread reporting of Prime Minister David Cameron’s assertion that the Government would have to put up taxes if the new rules did not come into force. He said: ‘If we don’t collect taxes properly and [don’t] make sure people pay their taxes properly we look at the problems of having to raise tax rates. I don’t want to do that, so I support the changes the Chancellor set out in the Budget which is to really say that not paying your taxes is not acceptable.” The leading article in Saturday’s Independent argued: “HMRC should, as a final sanction, have the right to gain access to bank accounts, but only with the agreement of at least one independent, and judicial, authority.” In the Sunday Times James Charles argues against new plans for HMRC to be able to take money directly from people’s bank accounts without consent saying he does not trust them to get it right.
Basel Committee considers imposing new capital rules on interest rate risks
The FT (£, p20) reports that the Basel Committee is looking at whether to introduce new capital rules for banks on moves based on interest-rate movements. Paul Sharma, former deputy head of the Prudential Regulatory Authority says it will be “as least a big a deal as the liquidity regime”. The article quotes the BBA’s Simon Hills arguing against a major shake-up: “The right way to go is to handle it in Pillar 2, where it is discussed by individual banks with their supervisors. We don’t think that forcing banks to hold a chunk of capital against interest rate risk in Pillar 1 is the answer.”
Cameron’s frustration over FTT
The Sunday Express (B3) reported that David Cameron has expressed his frustration over the Eurpoean Court of Justice’s decision to throw out the UK’s legal challenge on the Financial Transaction Tax. The article quotes BBA Chief Executive Anthony Browne saying: “There is a common misconception that this is just a tax on banks, but actually it is a tax on businesses and ordinary people. It will hit pension funds making millions of people’s pensions more expensive, increase the costs of goods in shops and hurt savers across Europe.” In CityAM (p2) Mark Boleat argues that “the FTT will not tackle the individuals taking the risks, it will not tax the causes of that recklessness; it will only add an extra burden to individuals who have struggled to save.”Read more
Concern over tax collection plans
Many papers – including the Telegraph (p1), Guardian and Independent – report that the Treasury Select Committee (TSC) has expressed concern about HM Treasury debt recovery plans that would allow HMRC to remove cash from bank accounts without a court order. The study warns that these new powers could leave taxpayers open to fraud and error. The Treasury predicts that around 17,000 people could be affected every year by moves which are expected to raise around £100m.
The committee’s chairman Andrew Tyrie MP said: “People should pay the right amount of tax. But HMRC does not always ask for the right amount. Some taxpayers may find money taken from their accounts that later should be paid back. That would be unacceptable.”
The ICAEW said that seizing money without a judge’s permission could undermine “a fundamental tenet of our English law and democratic society”.
Fall in repossessions
The BBC reports this morning that there has been a 20 per cent fall in house repossessions in the first three months of 2014, compared with a year earlier. The article also states that the number of mortgage customers in arrears is at a six year low. Paul Smee, director general of Council of Mortgage Lenders, said: “Lenders fully recognise that behind the numbers, these are real households, with differing circumstances. Lenders try to ensure that all borrowers are treated fairly and sensitively.”
Economy bigger than before the crisis
A report from NIESR in the Telegraph today (B1) states that strong growth in April could push the economy beyond its pre-recession peak. The think tank has said that growth in the first few months of this year meant the economy expanded by between 1 and 1.2 per cent.
ECB to move against low inflation in June
The FT (p1) reports that ECB president, Mario Draghi, has signalled that the central bank will loosen monetary policy to combat eurozone inflation in June, following pressure. The article states that current inflation of 0.7 per cent is less than half of the ECB’s target of 2 per cent. Also in the FT (p6) Ken Wattret, economist at BNP Paribas, said: “What we heard strongly reinforces our prior view that the ECB will ease policy in June, with the new inflation projections a key trigger for action.”Read more
Challenger banks rise up
A group of challenger banks are looking to raise £10 billion in a stock market flotation between now and 2016 (FT, £, p16). As competition in banking grows, challenger banks are specialising in activities such as commercial mortgages or other types of business lending. The FT also highlights that the biggest challenge for them “will be appearing sufficiently appealing to customers and investors”.
Help to Buy faces growing calls to scale back
The FT (£, p2) writes that despite growing cross-party consensus that the Government’s support for mortgages should be scaled back, Bank of England figures show a sharp jump in the willingness of banks to lend at a 90 per cent LTV ratio in the first three months of this year. The scheme guarantees a 5 per cent deposit on newly built and existing homes worth up to £600,000 and aims to boost lending to those with small deposits. The Chancellor George Osborne said he was “well aware of the potential problems Help to Buy could have”. He also highlighted that “demand can be increased quickly, through measures like Help to Buy, but supply can only be increased slowly”.
Yellen puts an end to the US’s quantitative easing
Federal Reserve chair Janet Yellen has suggested that “a continuing US recovery would mean an end to the country’s quantitative easing (QE) programme this autumn” (CityAM, p2). Yellen expressed optimism in the US economy and said “spending and production are on the rise again”. She added that the US is “on track for solid growth” (WSJ). The Times (£, p44) notes that bubbles in financial markets, tensions over Ukraine and a slowdown in housing are the biggest risks for America’s recovery. Despite her optimism, she also said that low interest rates “will be maintained for a considerable time after asset purchase programme ends”.
Overhaul at Barclays
As part of a strategic overhaul aimed at shrinking its trading operations, Barclays is cutting jobs in its core divisions. Outlined plans to almost halve its investment banking business from 50 per cent of risk-weighted assets to less than a third, in an effort to create what chief executive Antony Jenkins called a “leaner, stronger, much better balanced” bank (FT).
BBA condemns “Skull Cracker” armed robbery on building society
A violent armed robber known as the ‘Skull Cracker’ and his accomplice were dramatically arrested after robbing a building society. The BBA warned colleagues at banks and building societies about this morning’s raid using our collaboration alert system. A BBA spokesman said: “We have been working with our members for many years to spread best practice on how to deter armed robbers through robust security procedures or innovative technology, such as fogging or rising screens. The number of armed robberies has fallen sharply in recent years, but banks will continue to do everything we can do to protect customers and staff” (Mail).Read more
Finance Ministers voice concerns over FTT
Ten Eurozone countries published plans to introduce a Financial Transactions Tax (FTT) by 2016 which would focus first on shares and some derivatives (FT, £, p7). However the announcement came amidst calls by non-FTT ministers for greater transparency and detail over its implementation. Chancellor George Osborne said that the non-FTT group was “entitled to a clearer explanation of what was agreed”, adding that the plan had been worked on “largely in secret”. Similarly Swedish Finance Minister Anders Borg remarked that it was a proposal “we cannot understand” and that it was considering mounting a legal challenge alongside the UK.
The FT writes that the proposals are significantly scaled back from the so-called “Robin Hood” tax, and that the inability of the FTT countries to agree more details highlights the “deep divisions still not overcome after more than a year of talks”. Osborne told the ECOFIN meeting: “The FTT is not a tax on bankers – it is a tax on jobs, a tax on investment, it is a tax on peoples’ pensions” (CityAM, p2). Read the BBA’s comment on the FTT announcement here.
Government publishes consultation on new tax collection powers
HMRC has promised “strong safeguards” and extra checks in an effort to ease concerns over its new powers to access taxpayers’ bank accounts in order to recover unpaid tax, writes the FT (£, p4). However critics have said that these safeguards “did not go far enough”. Robin Williamson of the Low Income Tax Reform Group said that the “vague and unspecified” assurances of the right to judicial appeal were inadequate. In contrast, Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants said: “On paper, the safeguards look relatively robust”.
EU banks prepare for stress tests
The FT (£, p32) cites research by Morgan Stanley which shows that EU banks have raised €35.5 billion (£29.1 billion) in capital since last July in response to the ECB’s asset quality review and stress test announcement. Following the EBA’s release of the scenario for the stress tests, Morgan Stanley projects that this figure could rise to €60 billion.
OECD warns on housing bubble
The Telegraph (p1) leads with calls by the OECD for the Bank of England to “invoke new legal powers allowing it to rein in Britain’s booming housing market”. Under new laws introduced by the Coalition, the PRA can limit the Bank’s freedom to lend to house-buyers if it deems that the market is becoming unsustainable. The think tank argues that buyers should have to put down larger deposits, and has warned the Government to scale back its Help to Buy scheme in order to slow down rising house prices (Times, £, p2). Indeed, the Mail front page states that the scheme is “expected to be reined in within months”, adding that Business Secretary Vince Cable pans to discuss the issue with Bank of England governor Mark Carney in the next few weeks.
Treasury puts spotlight on regulators
Chancellor George Osborne has announced a consultation to examine whether the PRA and FCA are striking the “appropriate balance of fairness, transparency, speed and efficiency”, writes the FT (£, p22). The call for evidence asks whether the criteria for referral to enforcement were “clear and being used appropriately”. It will also look at whether there are adequate opportunities for those under investigation to make representations during the process.Read more
Eurozone ministers to announce FTT plans today
Reuters reports that eleven European countries will today announce plans to introduce a Financial Transactions Tax by 2016. The level and scope of the tax are still to be agreed but the article reports that the German government favours a phased-in approach, starting with a tax on shares, and including derivatives at a later stage.
Interest rate discussions begin at the BoE
The FT (£, p2) reports that this week discussions will begin at the Bank of England regarding the prospect of raising interest rates. The central bank is no longer bound by guidance to keep rates at 0.5 per cent as unemployment has fallen below the seven per cent threshold. The article quotes Sir Jon Cunliffe, deputy governor for financial stability, who last week said that interest rates “will need to increase once the recovery is well established.”
The Telegraph on Monday (p1) warned that rapid rise in interest rates could significantly reduce household disposable income and derail economic recovery. The newspaper cites research from Scotiabank which found that a one percentage point rise in interest rates could knock two percentage points off economic growth. Alan Clarke, the head of fixed income at Scotiabank said: “The bottom line is that if rising interest rates do subtract close to two per cent from headline growth, then we might expect to see growth of closer to one per cent over the coming years. We should enjoy this year’s bumper growth while we can.”
Over the weekend the FT also reported (£, p3) that the Bank of England are considering “politically controversial” moves to cool down the UK housing market as part of these discussions. On Thursday, deputy governor Jon Cunliffe acknowledged that housing was the “brightest warning light on the BoE’s dashboard” and there is speculation that the FPC could take measures to address this as soon as their June meeting. However George Buckley, UK economist at Deutsche Bank, said that any move could be seen to contradict existing, heavily promoted government policies such as Help to Buy.
Report predicts slowdown in growth
A report by EY Item Club – an economic forecaster – says that the banking sector can expect to see profits increase by 3-4 per cent compared with economic forecasts for the overall economy of 5-6 per cent growth (FT, £, p2). The report speculates that companies are becoming less reliant on bank lending as many borrowers look to alternative providers. It also noted that there has been a 20 per cent increase in bond issuance since 2009 and that corporates were building up large cash balances, which means that businesses were using retained earnings to finance investment. All of which led to EY predicting a reduction in the growth of business borrowing from banks from 2.5 per cent to 1.5 per cent.Read more
Retail investors to be able to buy shares in TSB
Lloyds Banking Group has confirmed the some of the initial public offering of a more than 25 per cent stake in TSB will be open to ordinary investors, reports the Telegraph (pB1). TSB will be a major new medium-sized challenger in the banking market with 632-branches serving 4.5 million retail and 127,000 small business customers – at an estimated cost of £172 million (FT, £, p14). The announcement comes as Lloyds’ chief executive declared the bank was making good progress, “our strong performance enable the UK Government to further reduce its stake, returning an additional £4.2 billion of taxpayers’ money in the first quarter [of 2014],” said António Horta-Osório.
Deputy Bank of England Governor issues warning about property prices
The Bank of England has given its strongest warning yet that a housing bubble threatens to derail the UK economy, writes the FT (£, p1). Speaking in London yesterday, Deputy Governor for Financial Stability Sir John Cunliffe argued that “strong demand, weak supply and expectations of a rising market could lead to a period of sustained and very powerful pressure on house prices.” The Bank’s Financial Policy Committee will meet in June to discuss whether to use tools, such as tightening of mortgage underwriting standards, should be used in addition to the new Mortgage Market Review rules to cool the price rises (Telegraph, pB1).
The Deputy Governor’s comments come as contrasting trends have emerged in the latest house price data. Land Registry statistics showed a fall of 0.4 per cent in prices in England and Wales between February and March, in direct contrast to recent Nationwide figures that found prices rose by 1.2 per cent in April nationally. Meanwhile, the latest Bank of England Bankstats reported a fall in mortgage approvals.
New lending rises but net lending falls as businesses bolster their balance sheets
Yesterday’s Bank of England Bankstats showed an unexpected jump in businesses repayments on outstanding loans and overdrafts as well as strong growth in deposits – up 8 per cent on the same time last year. These trends help account for the reported fall in net lending to small and medium-sized enterprises (Times, £, p46), despite new borrowing rising by more than 15 per cent on the same three months a year earlier. Commenting on the Bankstats, BBA Chief Economist Richard Woolhouse said: “The important thing to remember is that gross lending to smaller business has been growing for a year now and that banks are giving these firms the support they need to power the economy.”