e-briefing 18/1/2010

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Policy, Legislation, and Regulation

More than a million households use credit cards to pay mortgage

A report from Shelter, published in ROOF magazine, indicates that 6% of UK households have used their credit cards to make mortgage repayments in the past year. The findings are based on a YouGov survey of 2,022 people and indicate that the practice is most commonly used by people in lower social grades (8% of those in the C2, D and E, classifications compared to 4% of those in the A,B and C1 groups).

The news comes as the Department for Business, Innovation, and Skills is set to conclude its current consultation into the credit and store card market. Responses to the consultation are required by 19th January.

http://england.shelter.org.uk/news/january_2010/1m_paying_for_homes_by_creditcard

BIS credit card consultation

Attention turns to 'getting our money back'

US President Obama has set out proposals to levy $90 billion over the next 10 years from the banking sector through the implementation of a 'financial crisis responsibility fee'. Citing increasing bank profit levels and excessive bonuses as justification for the move the fee particularly targets investment banks and is expected to be paid by around 50 financial institutions, including some US subsidiaries of foreign owned banks. The Times has estimated that Barclays, HSBC, and RBS may have to pay as much as $10 billion to the US Government if the proposal goes ahead as currently structured.

Alistair Darling has been reported (BBC News) as ruling out a similar levy in the UK, pointing to the fact that the UK Government has taken shares in banks here which can be resold once values have increased. However, shadow chancellor George Osborne has stated that the Conservatives would follow a similar approach to the US if there was an international consensus on the issue. The IMF has now issued details of a consultation process on Financial Sector Tax which is looking to receive initial comments by 1st February, and will be issuing a further consultation document in due course. See the IMF website for further details

World Economic Forum highlights risk of UK fiscal crisis

The World Economic Forum has issued its 2010 Global Risks report highlighting the possible long term impact of government responses to the financial crisis. The report states that 'Governments, in the US and the United Kingdom in particular, are now faced with a set of tough choices. The most pressing is how to time a gradual and credible withdrawal of fiscal stimulus so that the recovery is sustained but not so late that fiscal deficits cause fears of sovereign debt deterioration and a flight to safety that could drain their economies of capital and confidence'. The report also warns of the social and political dangers of long term unemployment.

Lib Dems would split up the biggest banks

Lib Dem leader, Nick Clegg, has pledged that the party would split up Britain's biggest banks in order to prevent 'high risk casino banking does not put ordinary peoples' savings at risk'. The pledge is contained in their pre-election document 'A Fresh Start for Britain', and the Lib Dems are also committed to 'shift the economy away from its over-reliance on the City and on financial services.' They will also look to encourage local and regional initiatives to increase support for business, including by creating Regional Stock Exchanges.

US Financial Crisis Commission starts public hearings

The US Financial Crisis Inquiry Commission, established in May 2009, started its public hearings on Wednesday 13th January with testimony from the Chief Executives of Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Bank of America.

Chaired by Phil Angelides, the former California State Treasurer, the ten member Commission has been provided with a budget of $8 million and given the power to subpoena witnesses. It is charged with "examining the causes, domestic and global, of the current financial and economic crisis in the US" and has a deadline of 15th December 2010 for the publication of its final report, but has also stated that it will issue interim reports throughout the year as its findings emerge. Twenty two specific topics for further investigation have been set out on the Commission's website at: www.fcic.gov/

Basel Committee consults on measures to promote banking 'resilience'

The Basel Committee for Banking Standards is consulting on proposals to strengthen global capital and liquidity regulations. These include improving the 'quality, consistency, and transparency' of the capital that banks hold and putting in place a series of measures which will promote the 'build up of capital buffers in good times that can be drawn upon in periods of stress'. The consultation runs to 16th April 2010 and can be downloaded from www.bis.org/publ/bcbs164.htm

Running in parallel is a consultation on the international accounting standards to be applied when measuring capital and liquidity in banks. This can be downloaded from www.bis.org/publ/bcbs165.htm

New Chief Financial Services Ombudsman appointed

Natalie Ceeney CBE has been appointed as the new chief ombudsman and chief executive to succeed Walter Merricks who stepped down in October 2009. Natalie takes up her new role in March 2010. She is currently the Chief Executive of the National Archives and Keeper of the Public Records and has previously been been employed as a strategic consultant at McKinsey and Company.

Financial Inclusion

Are illegal lenders benefiting from the credit crisis?

A new report commissioned by Circle Anglia and written by the Financial Inclusion Centre estimates that between 650,000 and 850,000 households have lost access to legal credit options as a result of the credit crisis. Extrapolating from previous research, it estimates that this would expand the market for illegal loans and that up to 200,000 people could now be using illegal lenders in the UK, assuming that supply expands to meet demand. It further extrapolates the possible total cost of this borrowing and reports this to be £82 million.

The full report is available here

Consumer Focus calls for a new Post Office bank account

Nearly one million of the poorest people in the UK could be lifted out of financial exclusion if a new, simple-to-use bank account is launched by the trusted Post Office network, according to new Consumer Focus research. The report 'Opportunity Knocks: providing alternative banking solutions for low income consumers at the Post Office' argues that the Post Office network is well placed to capitalise on the low levels of public confidence in banks which has resulted from the crisis, and should be offering a 'tailored, responsive' product to provide an alternative to the current basic bank accounts on offer.

The Department for Business, Innovation, and Skills is currently consulting on the options for Post Office Banking and responses are required before 24th February.

Click here for details of the BIS consultation

Click here for a summary of the Consumer Focus research

Financial Inclusion programme generates £26 million per year in Leeds

Leeds City Council has published an economic impact assessment of its financial inclusion programme which indicates its intiatives are generating £26 million for its local economy every year, and that for every £1 spent an amount of £8.40 is generated for the regional economy. The findings are based on a survey of local residents and users of debt and welfare rights provision and local credit union services.

The full report can be downloaded from the City Council website

FSA starts procurement process for Moneymadeclear

The FSA has started the procurement process for the national roll out of its Moneymadeclear service, and is seeking delivery partners for the face to face element of its provision. The service aims to provide consumers with generic financial advice and to help them make confident and informed decisions about their money and the national roll out follows the trial of services in the North East and North West regions.

Full details of the tender are available here

Latest figures on DWP Growth Fund released

Growth Fund statistics for the period July to November 2009 are now available from the Department for Work and Pensions website. A total of 208,926 loans were approved in the period with a combined value of £91.4 million. The average loan value for the fund now stands at £434. 38% of all customers taking a loan also opened a bank or savings account at the same time.

The press release can be obtained here

Market Developments

All change on the high street

Spanish banking giant Banco Santander has started its rebranding of 1,045 Bradford and Bingley and Abbey bank branches. Santander bought Abbey in 2004 but following the purchase of Bradford and Bingley and the Alliance & Leicester in 2008 is now bringing all of its UK outlets under the single Santander brand. The three hundred Alliance & Leicester branches will be rebranded later this year. Santander now has one fifth of the current account market in the UK and is the second largest mortgage lender. It has approximately 25 million customers.

Santander has also expressed an interest in bidding for the purchase of 300 Royal Bank of Scotland branches due to go on sale this month and for the 'good' parts of Northern Rock which was split into two parts on 1st January and contains savings balances of around £19bn plus approximately £10bn of relatively low risk residential mortgages.

However, Santander faces competition from Virgin Money which, following the purchase of Church House Trust last week, has now obtained a banking license allowing it to take deposits and lend mortgages; from National Australia Bank which already owns the Clydesdale and Yorkshire banks, and from the Brazilian Banco Itau.

Cost of new mortgages at five year low

Interest payments on new mortgages are at their most affordable level for five years according to figures published by the Council of Mortgage Lenders. On average, households taking out a new mortgage are now only required to pay 10.6% of their gross incomes on interest payments. However, high deposits are required with the average loan to value for new mortgages now standing at just 67%. In contrast to new loans for house purchase, remortgage activity has slumped by 39% over the year.

http://www.cml.org.uk/cml/media/press/2512

Banks report first increase in business since 2007

Business volumes in the banking sector have risen for the first time since 2007 according to a survey of 83 financial sector firms conducted by Price Waterhouse Coopers on behalf of the CBI. The survey, which covers the three months to December 2009, also revealed an 'unexpected' rise in profitability for banks caused by a widening of spreads between deposit and loan rates and the use of cost cutting measures, including job losses (November saw Lloyds Banking Group announce 5000 job losses and HSBC a further 1700 job cuts in the UK over the next 12 to 18 months).

Building Societies participating in the survey reported a rise in optimism about the overall business situation but did not witness an increase in business, whilst finance houses continued to suffer a record fall in business volumes and are predicting further declines for the next three months, driven by a decline in business lending. However, the widening of spreads and cuts in total costs meant profitability increased in line with expectations.

The press release is available from the CBI website

Forthcoming Events

East Sussex Financial Inclusion Seminar, 22nd February

CfRC Chief Executive Damon Gibbons will be making the keynote address at this event and discussing the position of low income borrowers in the credit crisis and how local partnerships can respond. The event takes place at the Towner Gallery, Eastbourne and further details can be obtained from Clare Dann at East Sussex Council

Financial Services Ombudsman Training

The Financial Services Ombudsman is running a number of training events for community and advice workers throughout January and February. The events are free and are designed to provide information about the role of the ombudsman service and their approach to dealing with different types of financial disputes. Fill details of the programme can be obtained here.

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