Bank of England admits its financial crisis failure
May 18, 2012 at 11:15 am
Mervyn King, the governor for the Bank of England, finally admitted that he could have done more to spot the signs of financial crisis and alert the correct people.
In a speech for the Today programme lecture, King confessed that Bank of England regulators should have noticed that UK banks had become too important to fail but were borrowing too much to sustain their activity. He stated: “With the benefit of hindsight, we should have shouted from the rooftops.” He went on to advocate that Gordon Brown’s decision in 1997 to move regulation to the Financial Service Authority (FSA), left the Bank with inadequate authority to do little more than “publish(ing) reports and preach(ing) sermons.”
The governor proceeded to blame the banks for the recession, including his own, and strongly recommended a complete overhaul of the current financial system. King stressed that “to make our economy safer” it is vital to separate retail banking from “risky investment banking.” These remarks from King work in favour of the Chancellor’s decision for planned legislation to segregate the two completely by 2015.
In response to the acknowledgment of guilt, MPs have immediately called for an investigation into the Bank of England’s role in the financial crisis of 2007/2008. John Mann, Labour member of the committee, stressed the importance of an inquiry by saying: “We need to know where the Bank failed, and why. We also need to look at his role, because he was a big part of the problem.” When approached in a BBC interview on 3rd May, King snubbed rumours of him being ‘scared’ of a full scale investigation, saying that he is “very happy” for it to go ahead but felt the one in 2008 was sufficient.
UK and France refuse EU bank plan
May 15, 2012 at 11:22 am
Britain and France rejected EU bank plans to insure banks against future failures in a lengthy 16 hour meeting on 2nd May.
Michel Barnier, EU internal market commissioner, has laid out plans to collect national funds from all EU member states to help prevent further economic crisis. The plan to gather 1% VAT from all EU member states is an attempt to provide an income to reorganise or stem issues in failing banks. The second major idea is to collect a levy on all financial transactions, providing a central kitty. The European Commission sees this as a collective response to preventing future financial malfunction. Barnier states that these measures could produce a combined total of 60 million Euros, increasing the budget until 2020 to around a trillion Euros.
The UK has rejected this idea on the basis of it being a ‘moral hazard’. George Osborne, Britain’s Chancellor of the Exchequer feels that “The purpose of the bank levy is to raise money for general expenditure purposes” and therefore believes that a levy solely for banks is similar to an insurance premium, making banks feel entitled to a bail-out if they find themselves in trouble. France is said to have similar concerns over the financial plan. Osborne goes on to say that “If we walk away from this table with 27 countries all having gotten some kind of concession for their national banking issues, we will have completely failed and it won’t just be a political failure; it will be potentially a serious economic failure for our continent.”
Despite the drawn out meeting, the EU commissioner threw out the idea of complete agreement being necessary and was happy to settle on a majority vote. In terms of Britain, he suggested that if they were not in agreement, they would have to “go it alone”. German government officials have commented on the disagreement by suggesting that both Britain and France’s obstinacy is concerned more with needing the funds to ease their own national budgets than being a “moral hazard”.
Barclay’s rebellion against bankers’ bonuses
May 5, 2012 at 11:18 am
Small shareholders of Barclays have sparked a rebellion against bankers’ pay and bonuses. The rebellion is said to be the biggest backlash since the start of the financial crisis.
Shareholders queued in the rain last Friday (26th April) to voice their opinions at Barclays’ Annual General Meeting, held at Royal Festival Hall, London. The meeting took a negative turn when shareholders, who make up around a third of Barclays’ shares, voted against proposed pay packages.
2 billion of the votes cast protested against Barclays’ pay proposals, whilst half a billion shareholders, ranging from members of the public to large powerful corporations, abstained from voting. This made a total of 31.4% of shareholders refusing to support pay at Barclays, which included Bob Diamond’s (chief of Barclays) package with a value of £26.6 million. Furthermore, 21% of investors launched a similar revolt by refusing to re-elect Alison Carnworth, the head of Barclays’ remuneration committee, as a director.
The rebellion strikes after only £730 million was distributed to shareholders last year, whilst £2.15 billion was received in bonuses by executives. Shareholders are said to be equally outraged at Barclays paying Bob Diamond £5.75 million to cover a US tax bill. Investors complain that pay packages are not reflective of the bank’s performance. George Dallas, director of corporate governance at F&C, confirms this by saying: “We voted against the report because we do not believe the remuneration committee exercised sufficient discretion, by granting substantial bonus awards for a year in which the company’s performance was mixed.”
Despite the embarrassing backlash for Barclays, the bank does have the overall right to ignore shareholders’ complaints on the issue. This showed in Diamond’s attempt to defend the bank’s extortionate bonuses by saying “We (Barclays) need to balance the pace of change with ensuring we attract the best people.” In spite of this defensive testimonial, it is clear that Barclays need to think about taking serious action in terms of appeasing their shareholders on this matter.
AIB mis-charging costs 3.1 million Euros in pay-outs
May 1, 2012 at 11:09 am
In the midst of the Payment Protection Insurance (PPI) scandal, Allied Irish Bank has confirmed that it will be refunding €3.1 million to around 11,500 customers for the mis-sale of insurance products – an average of €270 per customer.
After recently being fined €2 million by The Central Bank, state-owned Allied Irish Bank has now been ordered by The Financial Services Authority to write to every customer that may have been affected by this blunder. The letter sent by Allied Irish Bank vaguely stated that there had been ‘inconsistencies’ in the sale of insurance and a guide to claiming the money back. When confronted over the alleged ‘inconsistencies’ by a BBC correspondent, Allied Irish Bank refused to divulge any more information.
Allied Irish Bank has, however, informed the public that the errors were found during a review of credit card accounts and relate to Payment Protection Plans, travel insurance and card protection. It is thought that the inaccuracies stem from issues in the bank’s internal verification systems and failures to validate customer information correctly in cases of contradictory information on application forms. It is said that alterations are being made internally to these systems to prevent an episode like this from occurring in the future.
In terms of the refunds, Allied Irish Bank has said that the review programme was carried out according to pre-determined procedures relating to customer refunds. In any cases of doubt, the benefit has been given in the customers’ favour as an overarching gesture of the bank’s apology. The Central Bank has been made aware of this issue and is now launching an investigation.
U.K. banks expected to see poor loan growth in 2012
March 10, 2012 at 3:51 pm
The Bank of England’s freshly released quarterly inflation report reveals that the UK gross domestic product (GDP) growth is expected to remain modest in the near future and unlikely to return to its pre-crisis level until 2013.
The report indicates that while households’ incomes are slowly recovering, the government’s budget cuts and tight credit conditions have lowered the confidence of households and businesses alike, which has in turn affected demand as economic uncertainty continues to loom.
UK GDP contracted by 0.2% in Q4 of 2011, in contrast to Italy and the Netherlands that both shrank by 0.7%, falling into recession in the last quarter.
According to the report, the gloomy outlook and fiscal consolidation by the government is largely due to external factors, namely the ongoing concerns about the solvency of several euro-area governments, noting that the single biggest challenge to domestic recovery is the absence of a unified policy response in the Eurozone. However, even if the Eurozone crisis could be resolved in the near future, there is likely to be an extended period of slow growth in Europe.
Meanwhile, the five largest institutional banks in the UK, including Barclays, Lloyds Banking Group and RBS failed to fulfill the governmental lending quota in 2011. The deal, referred to as Project Merlin, obliged banks to lend a certain amount of funds, especially to small and medium sized businesses in recognition of state aid during the crisis – a mark missed by over £1billion, from the total of £76 billion.
This has drawn a lot of scrutiny over how the government has handled the situation and this is likely to further curb borrowing by households in the UK as confidence in the sector is falling.
Moody’s negative outlook for Britain sends the pound, bank stocks tumbling
February 26, 2012 at 3:48 pm
Moody’s credit rating agency has announced that British banks RBS, HSBC and Barclays are among 114 major banks in Europe that are currently under review for possible downgrades. The announcement came on the heels of a warning that the UK, along with France and Austria, is in danger of losing its triple A-rating after being placed on a negative credit outlook by the rating agency.
Moody’s said in a statement that although the UK operates outside the Eurozone, it is in danger of further economic, political or financial shocks due to trade and financial links within the zone. Furthermore, the UK’s outstanding debt has effectively matched it with the most indebted triple A-rated nations.
The statement stated that there is a 30% chance of a rating downgrade for the UK within the next 12 to 18 months, which is the lowest level of warning that could be issued by Moody’s. However, even this low-level warning is likely to have an effect on the lending policies of Britain’s financial institutions which are already under pressure from policy makers to keep more funds liquid in case of further shocks from the Eurozone. This will in turn hike up interest rates and hamper the growth and profitability of banks.
The stock and currency markets reacted shortly after Moody’s statement, with sterling falling to a two-week low against the dollar while stocks for most of the reviewed British banks plummeted before making a drawn-out recovery.
Financial Times London reports that during the recent developments in the Eurozone debt crisis saga, Moody’s has downgraded the ratings of six European nations including Italy, Spain and Portugal. Among the 114 major banks under review, over 20 have headquarters in Italy, over 20 in Spain, with 10 in France, 9 in Britain and seven in Germany.
£10.5 million fine for HSBC
December 14, 2011 at 4:41 pm
HSBC has been handed a record fine of £10.5 million by the FSA (Financial Services Authority) for mis-selling bonds to elderly customers, many of whom were in care and vulnerable.
The problems arose with a subsidiary of HSBC called NHFA (Nursing Home Fees Agency). Between 2005 and 2010 the subsidiary provided advice to a total of 2,485 customers with an average age of 83.
Most of the customers were either in care or going into care, and NHFA advised them to buy five-year bonds to fund their care. However, it turned out that many of the customers were actually likely to die before the end of the investment term.
Each customer invested on average £115,000, and following a third-party review it was found that about 90% of the customers were unsuitable for the product.
As a result the FSA handed HSBC the record fine, and the bank is also thought to be paying out £29.3 million in compensation.
However, HSBC was given a 30% discount on the fine because it brought the problem to the attention of the FSA.
Because many of the customers were very elderly, it has been confirmed that any compensation which is due to people who have died will be paid out to their estates instead.
It has all left a very bad taste in the mouth, and hopefully this huge fine will prove to be a deterrent against this form of bad advice being handed out to people in vulnerable positions.
Internet banking use on the rise – additional risks for consumers
November 5, 2011 at 4:39 pm
Usage of internet banking in the UK is on the rise – a recent government report on internet access estimated that 55% of all adults in the UK now make use of internet banking and this rises to 72% in the 24-35 year-old age bracket (Office of National Statistics, 2011). However, switching to internet banking can expose consumers to a risk of fraud if basic security measures are not taken by both the banks and their customers. Internet Banking fraud is usually connected to computer viruses, scams or leaving details on shared computers. In the UK this led to losses of £16.9 million in the first half of 2011 which is down 32% from last year, largely thanks to increased consumer awareness (UK Cards Association, 2011).
Banks have also taken their own steps to help reduce internet banking fraud. For example, HSBC and Barclays now offer customers basic virus protection when they open an online banking account, to help guard against viruses that can send private banking details and passwords to criminals. As a standard, all banks also employ strong encryption to prevent interception of private information over the internet. An increasing number of banks now further enhance your online security by issuing customers with either a portable card reader or a secure code generator device. A team at Cambridge’s Computer Laboratory, however, recently published a paper (Optimised to Fail: Card Readers for Online Banking, 2011) that highlights a number of issues with the first generation of these devices. Firstly, if your personal card reader is lost or stolen, it may be possible for criminals to guess your PIN by looking at which keys have been worn down, so it is important to notify your bank immediately if your reader is missing. Secondly, the team report that there have been instances of criminals tampering with Chip and PIN readers to use with stolen bank cards in order to access online accounts. However, if you report your card as stolen promptly, these attacks can be mitigated and overall, the card readers do appear to be helping to limit the impact of online banking fraud.
Below are some simple additional tips you can follow to help protect yourself from fraud when accessing your online bank account:- Protect your computer using either your bank’s virus protection software or some other good virus protection software (such as AVG Free or ClamAV) and make sure that this anti-virus software is up to date.
- Make sure that you can see the “secure” padlock symbol when logged in to your internet banking site. Most recent web browsers also have a way to indicate when your bank is using extra-strong security (for example, for HSBC, HSBC BANK PLC displays in green letters in the address bar).
- Although all online banking sites have a built in time out feature, it is still sensible to try and log out after you have finished, especially if you are using a shared computer as this will prevent anyone from accessing your banking details after you are done.
- If you are using a shared computer (especially when at an internet café), it is a good idea to “Clear Private Data” before logging off the internet. In Internet Explorer, this can be accessed by selecting the Tools menu from the main address bar and clicking on ‘Delete Browsing History’. Instructions on how to do this in Chrome, Safari and Firefox are available online.
Moving abroad – can I keep my UK bank account?
May 27, 2011 at 1:59 pm
If you are planning on moving abroad you may be asking yourself whether you can keep your UK bank account. Well not only is it possible but it is also highly advisable.
Here are the main reasons why:
- Banks are not allowed to close down your account without your permission, and don’t forget that above all, they want to keep your money!
- If you are not planning to stay abroad permanently, it is essential that you keep ties with your bank. When you return to the UK, you may find yourself in a Catch-22 situation: it is very hard to open a UK account without a proof of address – and how can you get a roof over your head without having a bank account?
- Even if you are planning a permanent move, you might want to come back to the UK for holidays or work, so a UK bank account will always come in handy.
- It will help make a smooth transition to your new life abroad, before being able to open an account there.
- You may also have to keep meeting some expenses in the UK (loans, payments, taxes, bills, etc) and collect income (wages, rent, etc). Don’t forget to list the revenue and expenditure that will continue to go through your account. You can set up the necessary automatic withdrawals and transfers before you leave or use online banking.
Once you know your new address abroad, your bank can usually redirect your statements at no extra charge, or you can choose to view them online.
It may be important to consider whether you need to transfer money from the UK on a regular basis. The Times Online lists the services offered by most high street banks such as HSBC, Lloyds and NatWest. The article also warns against excessive bank charges and lists other payment options through specialist brokers.
How contactless payment systems are making cashless payments easier and quicker
March 25, 2011 at 11:36 am
An innovative new way to pay for goods or services (totalling £15 or under) with a bank card is saving people everywhere time and effort – it’s called ‘contactless payment’ – the quick and easy, cashless way to pay.
With contactless payment systems, an embedded chip in a credit card, debit card (or even a key fob or Smart Card) facilitates a lightning fast transaction at point of sale (tills in shops, takeaways, petrol stations, cinemas, etc.). Rather than entering a PIN, the customer simply waves their card over a till-side reader, a secure payment is made, and they’re off!
Banks are confident that the hassle-free contactless payment cards will be a huge hit with people across the UK, and not only for the convenience they offer. Instead of having to rummage in a bag for their credit card, debit card, or cash, customers can find their contactless payment key fob easily and quickly, thereby significantly reducing queuing time for everyone at point of sale.
Contactless payment is also expected to increase consumer spending, with contactless cardholders being more inclined to buy goods on impulse (popping into a newsagent’s to buy a bar of chocolate, newspaper or cigarettes; grabbing a quick cappuccino at a café…). There are even plans for vending machines to be ‘contactless card friendly’ in the coming months.
Of course, banks understand that data protection is paramount when it comes to all card payments; therefore, contactless payment system developers have worked hard to ensure their cards, key fobs and Smart Cards are completely secure to use during transactions.
Most banks offering contactless cards will send their customers one upon request. Also, the (optional) cards will be automatically dispatched by post when customers’ current credit cards or debit cards expire.
