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.
BoE reviews policy of wiping tapes
Following pressure from MPs, the Bank of England is considering keeping recordings of key policy meetings. After a query by the Treasury Select Committee made in March regarding this issue, the Bank has appointed Kevin Warsh, a former governor of the US Federal Reserve, to look into the practise of destroying tapes of meetings without keeping a transcript. Chairman of the Treasury Select Committee Andrew Tyrie said: “This review is a welcomed and essential step. It was very concerning for the committee to discover that the Bank’s current practise was to destroy these records” (FT, £, p2).
Reactions to the European Court of Justice’s judgement on FTT
The European Court’s judgement on the Financial Transaction Tax (FTT) is widely reported in the press. The Mayor of London Boris Johnson, said: “With London’s economy buoyant once more and driving the national recovery, the last thing that we need is a barmy tax that will stamp on growth and potentially drive businesses to financial centres outside the EU” (Telegraph, p1).
According to The City of London Corporation, the FTT would cost the UK household savings £3.6 billion, the corporation also said that the Treasury had been right to fight against the levy’s introduction. A Treasury spokesman said: “Today’s decision confirms the UK will be able to challenge the final proposal for a FTT if it is not in our national interest and undermines the integrity of the single market” (FT, £, p3).Read more
European Court of Justice rules against UK challenge to the Financial Transaction Tax
The FT (£) reports that the European Court has dismissed the UK’s first attempt to block the so-called ‘Robin Hood tax’, saying that UK pleas were “directed at the elements of a future tax” which have yet to be agreed. The court said that it was only able to “review the decision to authorise those eurozone countries to negotiate the tax, through so-called ‘enhanced co-operation’”. However, the judgement does note that the UK “can potentially take action to annul the tax once it is adopted”. A European Commission spokesperson welcomed the ruling: “We hope that today’s decision will give added impetus to the 11 member states in their negotiations on the common FTT”. The BBA’s response to the decision can be read here.
Central banks publish details of stress tests
The Bank of England’s Prudential Regulation Authority (PRA) has published details of the stress tests that the UK’s eight largest banks and building societies will face. The stress test scenario will see residential property prices fall by 35 per cent after a sharp rise in interest rates, which taken with the recent recession would be the “worst 10-year period for British GDP since the First World War” (FT, £, p4).
If lenders fail to meet the minimum Common Equity Tier 1 capital threshold of 4.5 per cent following the market slump, then there will be a “strong presumption” that they will have to be strengthen their capital, warned the PRA. The Times (£, p36) reports that those who fail the stress tests may have to “reduce their risker practices and could be forced to suspend dividends or staff bonuses to conserve cash”. The Telegraph (pB1) states that even those banks who maintain the required capital threshold may be forced to strengthen their balance sheets if “regulators identify an area of concern”. CityAM (p2) notes that the BBA “welcomed the move as restoring faith in the sector”. Read BBA Director of Strategy James Barty’s blog here.
The European Banking Authority (EBA) also unveiled details of stress tests for 124 banks across the EU, including the four largest in the UK. Lenders will have to withstand a “global debt markets sell-off, a rise in funding costs, a new recession, and deep dives in property and equity prices” (FT, £, p8). BBC News writes that those banks which fail the tests will “have to produce a plan to boost their reserves by raising fresh funds from investors, selling assets or hanging on to profits instead of paying dividends”.Chairman of the EBA Andrea Enria said that the programme would be a “robust and effective tool for supervisors to address the remaining vulnerabilities in the EU banking sector”. Prior to these tests, the ECB will assess the balance sheets of the currency union’s main banks in a separate asset quality review.
Independent Scotland faces finance job losses
The Telegraph Business leads with a report by the Centre for Economics and Business Research (CEBR) which reveals that Scotland would lose 20,000 – 40,000 jobs in the event of independence. In a speech tonight, head of the CEBR Douglas McWilliams will say that “finance is highly likely to suffer” as without a banking union “the Scottish financial service economy will migrate to England were their customers are”. He will add that independence is “very likely because patriotism will trump the law of economics”.Read more
Paym to launch tomorrow
Saturday’s Guardian (p39) reported that when Paym is launched tomorrow, “the end of cash will come a little bit closer… There will be no need to ask for the other person’s sort code or account number, or tell them your own… But it is just the start of a revolution that over the next few years will see millions of us ditch conventional debit cards, credit cards, loyalty cards – and for Londoners their Oyster cards – in favour of using our mobile phones for almost every aspect of our finances.”
Rise in personal borrowing sign of strengthening recovery
There was widespread coverage in Saturday’s papers of the BBA’s latest high street banking statistics. The papers largely led with the news that personal borrowing had increased in a sign of greater confidence in the recovery (Evening Standard, p53) and that there had been a slight decline in mortgage approvals for the second month in a row. Many papers such as the FT Weekend (£, p2) linked this to the incoming rules from the Mortgage Market Review.
City leaders call on Government to do more to encourage savings culture
A group of 22 leading financial services companies wrote to the Sunday Telegraph (p21) to urge greater action to encourage people to save, describing it as a “once-in-a-generation opportunity”. In today’s Mail (p62) Aviva Chief Executive Mark Wilson warns that as a society “we are chronically under-saving. Half of people retiring have less than £20,000 in their pension to supplement the state pension.”
European banks prepare for stress testing
The FT (£, p18) reports that the ECB has said that it will notify bank executives immediately if it finds major problems in their balance sheets during its Asset Quality Review. The full results will be published in October. A separate article (£, p20) says that analysts from Morgan Stanley calculate that European banks have raised over £20.8 billion in capital since last July in preparation for the ECB’s stress tests.Read more
EU tax ruling imminent
The European Court of Justice is to announce a decision on the Financial Transaction Tax next Wednesday, 30th April, according to the FT (£, p2). The announcement has been accelerated after dispensing with two steps in the legal process – originally experts were predicting that a judgement would come no sooner than 2015. A spokesman for the Chancellor said: “We are confident we will be able to get an outcome which would protect the single market and non-participating member states.”
Banks sign up to code on wrong payments
The Telegraph reports that many UK banks have signed up to a voluntary code which obliges them to act within two working days when a customer notifies them that they have accidentally transferred money into the wrong bank account via online banking. In the case of disputes the banks have said that they will come to a decision within 20 days. The code should be incorporated by the end of May.
Adrian Kamellard, chief executive of the Payments Council, said: “Sending a payment with the wrong sort code or account number is like sending a letter with the wrong postcode and address – it won’t reach its intended destination and can be very difficult to get back.
“The overwhelming majority of the millions of payments we send each day reach their intended destination without any problem, but if you are unlucky enough to make a mistake this new process should help.”
ECB president supports plan to publish minutes
The FT (£, p8) writes that ECB president Mario Draghi has announced his support to publish the discussions from the central bank’s monthly policy discussions, in line with many other central banks. The ECB currently holds monthly press conferences to explain the thinking behind monetary policy discussions. Mr Draghi said that introducing minutes will “on balance serve to strengthen the governing council’s collegiate decision making and communication.”Read more
BBA data reveals Britain’s lending hotspots
The BBC reports on BBA figures that show personal loan data broken down by postcode. It highlights the area of Bath where residents on average have £2,311 of unsecured lending. Richard Woolhouse, the BBA’s chief economist, is quoted explaining the challenges of using this data. “This data is complex and it remains very difficult to draw firm conclusions about lending at a local level,” he says.
Bullish data point to sturdy recovery in UK and Europe
A closely-followed economic survey showing that Britain’s manufacturers are at their most optimistic since the boom of the mid-1970s is reported in the Financial Times and in many other papers. The CBI employment industrial trends survey found that 41% of companies were more optimistic about the state of the economy than three months ago – with only 8% less bullish. Meanwhile, the Bank of England revised up its estimate of how much the economy grew by during the first quarter to 1%. Eurozone purchasing managers surveys, also considered a key economic indicator, also show that business activity in the bloc was stronger during April than in any month since June 2011. (Times, £, P41)
Banks in an independent Scotland would help from London, claims S&P report
The ratings agency detailed analysis of banks north of the border suggest that an Edinburgh government would find it “challenging” to stand behind banks which have assets 12 times the size of the country’s output.
The newspaper suggests this is a ratio “far higher even than Iceland’s banks before their crash” in 2008.
SME Finance Monitor shows highest loan approval rates
Bradford’s Telegraph and Argus reports that businesses in Yorkshire are more likely to get a loan or an overdraft from their bank than those in many other regions, according to the BDRC SME Finance Monitor.
The newspaper quoted at Anthony Browne, the BBA’s chief executive, saying: “It’s great to see that businesses in Yorkshire are having real success when approaching their banks for business finance. This matters because more successful loan applications mean more innovation, more new jobs and more plans to expand.” STV, the Scottish broadcaster, reported that the same research showed that Scottish businesses were most likely to receive these forms of finance. There was also coverage on the news website rochdaleonline.co.uk.Read more
Bank figures show a rise in net lending
The Bank of England’s Trends in Lending figures released yesterday revealed a £100 million increase in net lending to SMEs in February compared to the previous month, writes CityAM (p8). The Bank’s figures also showed the continued increase in mortgage lending, with gross lending to first-time buyers at its highest level in six years in 2013. Although net lending fell by £500 million in the quarter to February compared to the same time period the previous year, this was a marked decline from the £3.3bn fall reported in the three months to November. The Bank stated that the fall had been driven in part by the property sector, where “an increase in repayments had cut net lending” (Times, £, p39).
The BBA’s Chief Economist Richard Woolhouse echoed the Bank, stating: “As the economy picks up businesses are building up record cash reserves and paying off more of their debt, leading to an overall decline in net lending” (Daily Express, p51). In the Telegraph (pB4) Scotiabank’s director of fixed income Alan Clarke pointed to firms taking advantage of cheap sources of financing, arguing that “after blockages in the financial markets have cleared, firms have been able to source borrowing directly from the financial markets rather than the banking system”. Furthermore, the Sun (p38) highlighted that a “high proportion of loans were being approved”. The full BBA press release can be read here.
Cable warns on executive pay
Business Secretary Vince Cable has written to FTSE 100 remuneration committees warning that pressure from government will “inevitably result” unless more is done to curb executive pay rises, writes the FT (£, p2). Dr Cable told the BBC that there had been a loss of trust due to accelerated pay – “particularly true in the banking sector where pay reached dangerous levels” – and that now was an “opportunity for companies to make peace with the public”. In his letter, the Business Secretary stated: “unless business is seen to act responsibly, pressure for further action will result” (Times, £, p36). The Telegraph (pB1) writes that Dr Cable’s “latest intervention marks his strongest signal yet that the Government could enact tougher legislation if boards fail to exercise restraint”. The Guardian (p1) notes that this year’s AGMs are the first since new rules were introduced requiring companies to give shareholders a vote on pay policies for the coming years.Read more
A five per cent minimum leverage ratio would cost European banks £116.7 billion
In a letter to the FT (£, p10) BBA Chief Executive Anthony Browne responds to Martin Wolf and Robert Jenkins’ recent articles calling for a higher leverage ratio. Mr Browne said: “By only concentrating on a leverage ratio of 3 per cent, they ignore all the other capital buffers that are being put in place. Indeed, UK banks will soon need to hold a minimum of 17 per cent primary loss absorbing capacity against their risk-weighted assets.”
A study by SNL Financial has estimated that Europe’s banks will need to find £116.7 billion if regulators increased the minimum leverage ratio to five per cent, according to CityAM (p9). Read the BBA’s Adam Cull blog on why leverage ratios are not as simple as they might seem.
New FCA mortgage rules will leave borrowers facing “invasive” questioning
The Mail (p1) has led on imminent changes resulting from the Mortgage Market Review that will lead to “borrowers facing a forensic probe into their personal finances”. The article speculated that the changes could lead to less choice of mortgage products for customers. Applicants are also likely to face a three hour interview and will be required to share more information about their weekly spending habits. Chief Executive of the Financial Conduct Authority (FCA) Martin Wheatley acknowledged that there was low awareness of the changes amongst consumers.
Bank of England to “ethically hack” UK banks to bolster cyber-security
The Bank of England will oversee an assessment of the resilience of the top financial institutions to better understand the UK’s ability to weather cyber terrorism and crime, writes the FT (£, p2). The Bank’s new cyber-chief Andrew Gracie will lead the exercise, which builds on the lessons learnt from the industry-wide Waking Shark II process. Read the BBA’s Andrew Rogan’s blog on Waking Shark II and find out more about the BBA’s Managing Cyber Risk conference here.Read more
Banks promote apprenticeship schemes
A number of high street banks have planned to take on 1,000 apprentices that will be able to get a permanent role, full pay and benefits equivalent to other new joiners. 30 per cent of the intake will represent staff from the UK’s most disadvantage areas. Secretary of State for Business, Innovation and Skills Vince Cable said: “Apprenticeships are a tried-and-tested way for employers to grow their talent” (Sun, p59).
Unemployment falls to 6.9 per cent
The Telegraph (pB1) reports that, according to the latest ONS data, unemployment has fallen below 7 per cent for the first time since 2009, triggering a “new phase of monetary policy” and an “economy towards sustainable growth”. The unemployment figures suggest an earlier interest rate rise from the Bank of England. The Guardian (p2) highlights senior economic adviser from the EY Item Club Andrew Goodwin saying that these figures represent “the beginning of the end of the cost-of-living crisis”. The Wall Street Journal notes that “the first phase of the BoE’s interest-rate guidance […] can be formally set to rest”.Read more
European Parliament agrees on new bank rules
The FT (£) leads on the EU banking reforms “designed to make banks safer and financial markets more transparent”. Les Echos reports that European Parliament President Martin Schulz called the final pieces of legislation on banking union a “high point” of the current legislature. David Ereira, a partner at Linklaters, told CityAM (p3) that the success of the new rules on banking union will “be down to how the European and national supervisors and resolution authorities across the EU work together”. BBA Chief Executive Anthony Browne welcomed the vote, stating: “Powers to enable the orderly failure of banks are a vital part of the new regulatory regime. The rules agreed today will make banks safer and sounder, incentivise market discipline and protect taxpayers from the costs of failure.”
Further legislation will increase the transparency of Europe’s capital markets, as well as ensuring that shareholders rather than bondholders will be the first to bail-out troubled banks. In addition, Handelsblatt writes that basic payment accounts “must be offered by enough credit institutions in any given EU country to guarantee both easy access for all and competitive offers“. The Telegraph (pB4) notes that the vote obliges countries to guarantee the first €100,000 (£85,000) in any savings account.
Business concern over ringfencing
The CBI has warned that SMEs may be adversely affected by ringfencing provisions as they would restrict access to hedging and trade finance products, according to the FT (£, p2). Under draft proposals, retail banks will be able to offer SMEs some simple derivatives to hedge risks, but not options. CBI director of competitive markets Matthew Fell said: “We seem to be hitting a bit of a brick wall in landing on the right definition”. BBA executive director Paul Chisnall told the newspaper: “The Treasury needs to talk to those that rely upon bank services so that they ensure that their hedging needs and preferences are understood.”
Smaller banks spy opportunity to challenge large lenders
The FT (£, p2) reports that UK challenger banks will be able to enlarge their share of the sector as larger banks deal with the upheaval prompted by new structural reforms. Chief finance officer of Arbuthnot Group James Cobb said: “The opportunity it gives us is between now and 2020…the (big) banks are going to be focusing inwardly over the next five years at least I think.” Last year smaller banks “welcomed moves by the Bank of England” to widen the range of collateral it accepts in liquidity operations, potentially increasing the number of institutions that could access the facilities.Read more
MEPs to pass sweeping reforms to market trading
The European Parliament is expected to adopt the Markets in Financial Instruments Directive (Mifid II) later today, according to the FT (£, p21). MiFid II includes tougher rules for trading commodities, over-the-counter derivatives and anyone undertaking high-frequency trading will now be regulated. The European Securities and Markets Authority will then begin the “complex process” of writing more than 170 technical rules that govern how markets operate.
Facebook seeks approval to compete in digital payments market in Europe
The Telegraph (pB5) reports that Facebook has applied to Irish regulators for “e-money” status. If approved, the EU’s policy of “passporting” would give the social networking site the ability to offer digital payments services in all EU member states. It aims to compete in the money transfer market – valued at between £3.5 trillion and £7 trillion by the World Bank. The Guardian (p21) adds that online giants Amazon and Google already offer e-money services, reflecting growing competition between financial services and the technology companies in the digital banking market.
Some EU member states calling for Liikanen to also apply to UK, says leaked document
EU countries, led by France and Germany, are opposed to the UK receiving an exemption from EU banking reforms that will ban proprietary trading, according to a leaked European Council document seen by the Times (£).The UK is exempt because it has already introduced the Vickers Commission’s bank reforms, including a ring-fence around British retail banks from their investment banking businesses. The document said: “These concerns mainly relate to the risk of discrimination against different national laws, market fragmentation and regulatory arbitrage within the EU single market for financial services.”Read more