Taxpayer bailouts for banks ‘too big to fail’ to end by 2022

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The UK’s banks should no longer be “too big to fail”, under revised rules announced by the Bank of England. The regulations will force banks to hold enough money from their investors to absorb losses without help from the taxpayer. If any bank does face collapse, the funds will be spent to finance an orderly wind-down. The Bank’s governor, Mark Carney, said the new rules were a “significant milestone”. “The implementation of [the rules] will ensure that banks that provide essential economic functions hold sufficient resources to be resolved in an orderly way, without recourse to public funds, and whilst allowing households and businesses to continue to access the services they need,” he said. About 400 banks and building societies will have to hold a collective cushion of £223bn, raised by selling bonds (glorified IOUs) to investors, but the current shortfall is estimated at only £20bn.

Banking crisis

The new rules were first suggested in the aftermath of the 2008-2009 banking crisis when the UK government had to spend £115bn to rescue the Lloyds Banking Group and the Royal Bank of Scotland from imminent collapse. The then chancellor, Alistair Darling, said at the time that RBS had been within just a couple of days of having to shut down its ATM machines because it was about to run out of cash. At one point, the direct government subsidy to the entire UK banking industry reached more than £1tn, according to the National Audit Office. If an insolvent bank does have to be rescued by being sold off or broken up, the investors’ funds will be used to keep it going in the interim without taxpayers being asked to dip into their pockets. International rules already require the world’s biggest banks, some of which are based in the UK, to have similar financial cushions in place by 2019. The new UK rules will widen the requirements to all UK banking institutions and will be introduced in two stages: interim requirements by 2020 and then final rules by 2022. The final date represents a two-year extension by the Bank from its original proposals, which have been the subject of consultation with the banking industry. “Banks are now required to hold several times more loss-absorbing resources than they did before the crisis, while annual stress tests check firms’ resilience to severe but plausible shocks,” the Bank said. “Banks are now also structured in a way that supports resolution. “The Bank of England now has the legal powers necessary to manage the failure of a bank, and significant progress has been made to ensure there is coordination between national authorities should a large international bank fail,” it added.

‘Too big to fail’

The size of the financial cushion will be decided individually for each bank. However smaller banks, building societies and investment firms – those with fewer than 80,000 accounts – whose collapse would not disrupt the banking system, will not have to raise fresh cash. They will simply have to continue covering savers under the requirements of the Financial Services Compensation Scheme (FSCS). The 2008-2009 banking crisis triggered a short but deep recession which led to a big cut in living standards for millions of people in the UK. The sight of some of the most highly paid individuals in the country being rescued from a problem produced by their own reckless behaviour, produced widespread anger. The financial authorities in the UK and internationally decided that taxpayers should not be on the hook for failed banks in the future. “During the financial crisis, governments were forced to bail out failing banks, rather than risk the damage that a disorderly failure would have had on the wider economy and financial system,” the Bank said. “Some banks were too big to be allowed to fail,” it pointed out.

By Ian Pollock Business reporter, BBC News


RBS facing £400m bill to compensate small business customers

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Bank apologises for poor treatment during financial crisis and will automatically refund fees.

Royal Bank of Scotland has apologised to 12,000 small business customers after admitting it faced a £400m bill to compensate them for poor treatment during the banking crisis. After at least three years of complaining of bad service from the bailed-out bank, small businesses will automatically receive refunds of the fees charged and allowed to make fresh complaints about their treatment between 2008 and 2013. Ross McEwan, the chief executive of RBS, said: “We have acknowledged for some time that mistakes were made. Some of our customers went through what was a traumatic and painful experience as a result of the crisis. I am very sorry that we did not provide the level of service and understanding we should have done.” Confirmation of the compensation for small businesses came as Andrew Bailey, the chief executive of the Financial Conduct Authority, prepared to appear before the Treasury select committee. Ahead of Bailey’s evidence, the FCA produced an update on a much-delayed report into what went wrong in RBS’s now-defunct global restructuring group (GRG) but did not publish the long-delayed report.

Allegations surfaced in 2013 when Lawrence Tomlinson, a businessman who was an adviser to the then business secretary, Sir Vince Cable, compiled a dossier of allegations that RBS was deliberately wrecking small businesses to make profits for itself. At the time, Tomlinson said he been approached by businesses which had ended up in GRG and had their properties sold to the bank’s specialist property arm, West Register. John Mann, a Labour MP who sits on the committee, said: “A £400m compensation scheme simply isn’t enough, we the taxpayers and part owners of RBS along with their customers need to know why this was allowed to happen.” The FCA said that “isolated examples of poor practice were identified” at RBS but dismissed the most damning allegations that the bank deliberately drove small business to the brink to make a profit.

Of the 12,000 customers put into GRG, around 4,000 were not viable, the FCA said. “Of the potentially viable [small business] customers transferred to GRG, the report concluded that most of them experienced some form of inappropriate action by RBS. However, the report also concluded that, in a significant majority of cases, it was likely that inappropriate actions did not result in material financial distress to these customers,” the FCA said. The regulator, which first promised to publish the report in December 2015, said it had been involved in developing the RBS compensation scheme. A new complaints process will be overseen by Sir William Blackburne, a retired high court judge, while complex fees paid by small businesses in the UK and Republic of Ireland will automatically be refunded. McEwan said: “Although the FCA review into the historical operation of GRG continues, we believe that now is the right time to deal with the areas where we accept some customers were let down in the past. “The culture, structure and way RBS operates today is fundamentally different from the period under review. We have made significant changes to deal with the issues of the past, so that the bank can better support SME [small and medium enterprise] customers in financial difficulty whilst also protecting the bank’s capital.” He has repeatedly defended the bank against claims that it deliberately tried to profit from small business customers and RBS repeated on Tuesday that it had lost more than £2bn in lending to small business.

While the FCA published the findings of the report – commissioned from legal experts Promontory and Mazars – it cautioned that the activities carried out by GRG were largely unregulated. “Therefore, the FCA’s powers are limited in this area,” the FCA said. However, it does not necessarily indicate the bank will escape financial sanction from the regulator. “The FCA is currently assessing what further work may be needed given the findings in the report. The FCA will provide a further update on this matter when it is in a position to do so,” the City regulator added. It said Promontory examined 207 cases and covered a six-year period, analysing 323 gigabytes of data – approximately 1.5m pages and 270,000 emails. Gary Greenwood, analyst at Shore Capital, said the compensation bill was “not as big as feared and may also take some heat out of the situation”. A review of the Tomlinson allegations commissioned by RBS from Clifford Chance in 2014 had highlighted the issues of poorly structured fees. McEwan said the situation could not be tackled until now as the FCA review was on-going.

Jill Treanor

Williams & Glyn sell off sparks watchdog’s attention

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Royal Bank of Scotland’s (RBS) potential sale of Williams & Glyn to challenger Clydesdale & Yorkshire Bank (CYBG) has sparked the attention of the banking watchdog.

RBS was told to divest of Williams & Glyn, and its network of more than 300 branches, by 2017 as part of its £45bn state bailout deal. CYBG revealed it was in talks to possibly snap up the bank last month. Now, The Sunday Telegraph has reported the Prudential Regulation Authority (PRA) is appointing investment bankers to advise on whether integrating Williams & Glyn’s computer systems could wobble the challenger bank. Offloading Williams & Glyn has been a a tricky journey for RBS. Efforts to sell to Santander in 2012, which were nicknamed Project Rainbow, fell through because of IT problems, and, earlier this year, another bid from the bank collapsed over concerns on the price. RBS had once aimed to spin off and float Williams & Glyn, but revealed that plan had been scrapped in its interim results in August. The bank also warned in its most recent quarterly results that it was unlikely it could divest of Williams & Glyn by the 2017 deadline it had been given. RBS reported a loss of £469m for its third quarter of 2016, as litigation and restructuring costs of nearly £900m took their toll.

The PRA, RBS and CYBG all declined to comment.

Hayley Kirton


Barclays card glitch: Customers charged twice in bank’s latest debit card error

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A customer said that Barlcays had inadvertently taken a £4,000 payment twice!

Barclays customers face being charged twice as the high street lender tries to fix a debit card payment glitch. However, by Monday afternoon the bank said the problem had been fixed, and all customers had been refunded. Some customers vented their anger on Twitter in the morning saying the system error has left them overdrawn. Theresa Worthington tweeted: “I had a text today to say I’m overdrawn I have been charged twice for two things I’ve purchased over the weekend why”. Barclays said: “We detected a small number of duplicated debit card payments this morning.”

“We are working to fix this and refund customers as soon as possible. We apologise for any inconvenience caused and affected customers will not be out of pocket.” Customers are advised to check their statements to make sure any potential duplicate payments are refunded. This is the latest issues affecting Barclays debit card payments. In April, Barclays customers complained that they were unable to make payments from their accounts, an issue for which the bank later apologised and attributed to a routine systems update. While in October last year, Barclays customers had trouble getting cash from their accounts after the bank was hit by a system glitch as the clocks changed to Greenwich Mean Time.Barclays’s payment glitch follows a similar problem with card payments at Asda over the weekend. The problem left thousands of customers facing long queues at the store’s checkouts across the UK.

Zlata Rodionova

Competition watchdog criticised by MPs over bank reform

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Treasury select committee chair accuses Competition and Markets Authority of ‘dropping the catch’

The competition watchdog has been accused of complacency and missing an opportunity to overhaul high street banking, including capping overdraft charges, despite a two-year long investigation. The accusations were levelled at Alasdair Smith, who led the investigation by the Competition and Markets Authority (CMA), by MPs on the Treasury select committee who were questioning him following the publication of the report in August. In a gruelling evidence session, MPs questioned why Smith – flanked by two members of his team – had not put a cap on overdraft charges and taken more radical measures to break the stranglehold on the current-account market held by the “big four” of Lloyds Banking Group, Royal Bank of Scotland, HSBC and Barclays. Andrew Tyrie, the Conservative MP who chairs the committee, said the CMA had “dropped the catch” despite support from politicians, academics, consumer groups and the media for a tougher stance towards the banking sector. “The banking crash has changed the terms of trade in favour of the regulators with respect to reform,” said Tyrie.

The Labour MP Rachel Reeves said that the cost of an unauthorised overdraft was greater than a payday loan, where the charges have been capped. Reeves, who is arguing overdraft fees should be restricted, said vulnerable consumers were being let down. “It’s dereliction of duty,” said Reeves. The CMA report stopped short of recommending overdraft caps and said that banks should set out a monthly maximum charge for unauthorised overdrafts, from which the industry generates £1.2bn in fees annually. It recommended that the Financial Conduct Authority should examine this area. Smith argues that a new technology allowing consumers to compare the personal data, known as Midata, will shake up banking.

Tyrie said no other CMA report had ever received such “unequivocal condemnation” but Smith said he was confident the recommendations would transform banking in three or four years. “Only history will prove which one of us is right,” said Smith. “I am confident that the work of our group will result in a major change for the better and that when people look back at the CMA report of 2016 they will see it as a landmark that really changed the direction that this market has gone in,” said Smith, who also insisted that banks were not making excess profits. Smith said after the hearing that the CMA was introducing 17 “hard hitting” changes. “We will also help customers avoid unauthorised overdraft charges by requiring banks to text customers when they are at risk of incurring charges and give them a grace period in which to take action,” said Smith.

The CMA investigation was first announced in July 2014 at a time when the Labour party was promising to create new banks. At the end of the three-hour evidence session, Tyrie said: “The committee was deeply disappointed by what it had heard.”

Jill Treanor


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