Banks not to be responsible for next financial crisis: BoE former Governor

Bank of England former Governor said on Monday banks won’t be responsible for next financial crisis as they have not yet recovered completely to the same that occurred in 2008.

Lord King warned because of the prolonged low interest rates. He said the banking system now seems safer but yet a point is to be made where it is completely safe.

He said it does not make sense to go indefinitely with very low interest rates and there has been little progress in solving different world economies imbalances problem.

However, talking to BBC Radio 4’s Today programme King also safely mentioned that he is not suggesting for any immediate rise in borrowing cost as the action may be too early and it resulted with another downturn.

He also talked about the Lehman Brothers collapse in late 2008 and said financial markets never thought the banks were at risk, but it was surprising to learn that people found the markets not trusting banks anymore.

About the earlier crisis he said it was very complicated and several aspects were attached to it. Even the response of Bank of England as well as of the Federal Reserve was complex too. There were several moving parts and he then felt to be a pilot in a cockpit who was always alert and tried keeping eyes on every light that was turning red.

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German economy growth may outpace current forecasts: Deutsche Bundesbank

The oil price has fallen around 25 percent and this has not been considered while calculating forecasts for next year’s economic growth in Germany as well as the eurozone.

President of Deutsche Bundesbank, Jens Weidmann, said in a recent interview that the growth may outpace current forecasts if things stand as per current situations and oil price remains at present low levels.

Jens is also a member of the European Central Bank’s governing council, and talking to Sunday newspaper Frankfurter Allgemeine Sonntagszeitung he added further that inflation will also be lower than the forecast in 2015 for Germany and eurozone as a whole.

He said the lower oil price will directly affect in lowering the prices of several goods due to lower cost of production and this will stimulate the economy of the region.

The German central bank earlier in December reduced growth forecast from 2 percent to 1 percent.

If believed to an article published in the weekly magazine Der Spiegel on Sunday, Germany is expecting a growth in its economy to get around 0.2 or 0.3 percentage point boost in 2015.

The magazine cited an internal note from the German Economics Ministry.

It is revealed the country will be paying around 12 billion euros, which is around 25 percent less compared to 2014, next year to the oil producing countries.

Meanwhile, Weidmann has opposed the plans of ECB to buy government bonds saying such measures are not required in stimulating the eurozone economy.

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Bank of England to monitor Internet, social platforms for unconventional data

Bank of England has now started monitoring what the British people are searching on the Internet and what they are sharing on social networks including Facebook and Twitter for collecting unconventional economic data.

It is reported special team has been set up by BoE to explore how the new data can help them in improving the picture of Britain’s recovery. This will also help them in deciding whether to change interest rates.

BoE chief economist Andy Haldane said analysis of the frequency of online prices searching and that of job may provide them with insights into inflation and unemployment.

He added further that such data will be better than official data as it could be more timely. Also, the official statistics may tend to lag.

Haldane said a new advanced analytics team are put into work to construct little models and also methods for extracting the data. They have a data lab too and their experiment would bring a big strategic change for the bank.

Earlier this year the bank imposed new constraints on housing market and the decision was based on the new data sources that included database on mortgages.

However, things may not be so rosy as it is seen. An article in Forbes says the bank needs to be careful as a similar project by Google was disappointing. It was dubbed as Google Flu and the Google Trends monitored influenza symptoms and cures. However, the data was not helpful to researchers in determining the incidence of flu.

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Australian Banks Face Class Action Lawsuit Over Late Fees

Five Australian banks face a massive class action lawsuit related to late payment fees. Law firm Maurice Blackburn claims that five of Australia’s largest banks face millions of dollars in potential payments over late fees charged to account holders.

The lawsuit is one of Australia’s largest class actions in history and involves over one hundred thousand customers across the country. Five well-known Australian banks are involved: Westpac, St George, BankSA, Citibank and ANZ.

The legal firm involved in the lawsuit, Maurice Blackburn, is regarded as a leading social justice firm in Australia. If the lawsuit is successful, customers of the banks involved will be able to receive compensation for certain unfair late charges.

The focus of the lawsuit is ‘exception fees’ – fees charged to customers when their account contains insufficient funds to pay for a transactions. Exception fees have also been charge to people who exceed their credit limits of make late payments.

Unlike most lawsuits, the statute of limitations on the case has been removed as to allow any affected customers to come forward. According to Maurice Blackburn, the banks in question charged Australian households £360 million in a one-year period.

This amount excludes any exception fees charged to Australian businesses. Maurice Blackburn’s head, Andrew Watson, believes that they have a “very strong case” and that the case will be a “safeguard for the rights of consumers affected by late fees.”

The legal firm claims that it will eventually expand the lawsuit to target nine of the country’s financial institutions. Future targets include American Express, National Australia Bank, Commonwealth Bank of Australia and BankWest.

Most of the banks involved in the lawsuit have remained silent. ANZ and Westpac both declined to comment on the case when contacted by the BBC earlier in the week.

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Barclays Trims Job, Scales Back Ambitions

Barclays bank financial scandalsBarclays has announced that it will downsize its workforce significantly over the next two years. The scandal-ridden bank plans to axe more than 7,000 jobs in its investment division after a series of public scandals and risky investments hit the bank’s reputation and bottom line.

In addition to the 7,000 jobs forecast to be lost in Barclays’ investment division, an additional 12,000 staff will lose their jobs with the bank by 2016. About 10,000 of the jobs Barclays plans to axe are based in the UK. The downsizing is part of a plan from new chief executive Antony Jenkins to “clean up” Barclays’ image.

Former chief executive Bob Diamond left the bank after the Libor scandal – a serious public relations disaster for the bank that was one of several scandals to damage its reputation with investors and retail customers. Critics of Barclays called the growth of its investment units under Diamond a “casino” strategy built on deception.

Jenkins has already encountered obstacles in his effort to bring Barclays back into a position of trust with the public. The bank suffered a PR setback earlier this year as it was revealed that high-level staff were paid over £1.5 billion in bonuses last year while profits at the bank declined rapidly.

In addition to the large-scale job cuts, Barclays is expected to significantly scale back its bonuses this year. In a statement, Antony Jenkins said: “With a smaller investment bank, our expectation is that the number of highly paid people, defined as over £1 million, will come down over time.”

The job cuts will affect an estimated 19,000 people worldwide – a significant size of Barclays’ 140,000-strong workforce. Although the bank hasn’t announced any news about branch closures, Antony Jenkins claimed that it was likely the number of bank staff working at retail branches would fall slightly as a result of the cuts.

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Tesco Launches Credit Card Aimed at New Borrowers

tesco clubcard and clubcard vouchersTesco’s banking division has launched a new credit card aimed at first-time credit users interested in building their ratings. The card, which has an APR of 28.9%, is aimed at the hundreds of thousands of people with poor credit ratings who do not qualify for mainstream credit cards. Called the Foundation Clubcard, the new Tesco Bank credit card gives borrowers who would not otherwise be able to access credit a chance at building their credit histories while earning Clubcard points. Applicants must earn at least £5,000 per year in order to qualify for the card, which was an adjustable credit limit. In order to encourage responsible borrowing, Tesco Bank allows the card’s credit limit to be set at just £250. A Tesco Bank representative claims that the card could help first-time customers interested in improving their credit scores who did not have access to other credit cards. The card will compete with other first-time credit cards offered by Barclaycard and Capital One. Barclaycard offers a card called Initial with a 34.9% representative APR; Capital One’s Classic Preferred card has a 28.9% APR – the same as the new card offered by Tesco. The new card has been praised and criticised by credit card watchdogs. Andrew Hagger, of MoneyComms, claims that Tesco Bank is “giving customers an excellent opportunity to gradually improve their credit rating.” Online commenters have called the card an extortion attempt and usury aimed at vulnerable borrowers. Supporters of the card have also noted that it could result in a drop in the number of people relying on payday lenders. By giving access to first-time borrowers who have few other options, Tesco could build a “path to credit” for people that could end up indebted to high-interest payday lending companies.

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Small Chinese Banks Scaling Up Shadow Lending

05China’s shadow banking sector is growing, according to new documents revealing a rise in the number of unlisted banks operating in the country. Well-known lenders, including several city-based firms, are engaging in complex credit schemes to avoid the country’s increasing regulations and issue more profitable loans to borrowers.

Much of the growth in China’s shadow banking industry – which many experts think could be as large as the country’s ‘official’ financial services industry – has been had by smaller banks. The loans, known as ‘shadow loans,’ are immensely profitable for banks as the Chinese economy grows and borrowers make timely repayments.

But as China’s economic growth weakens, many analysts believe that shadow loans could become a risky move for Chinese lenders. As shadow lenders tend to target a more vulnerable and risky sector of the lending market than mainstream banks, the likelihood of default in periods of slow economic growth is far greater.

Worse yet, many of China’s shadow banks operate with minimal capital, giving them little in the way of financial cushioning to prevent collapse if growth slows and loans aren’t repaid on schedule. Analysts believe that an increase in defaults could create a crisis for China’s gigantic shadow money lending market.

The Financial Times recently carried out an analysis of 10 leading shadow banks in China, all of which are unlisted. According to the analysis, the banks’ risk exposure soared over the last year as the number of borrowers likely to struggle with their repayments increased.

Most of the shadow banks operate in large cities outside China’s mainstream centres of business. The 10 banks monitored by the Financial Times had a massive increase in non-standard credit products, with trust plans and other products rising from just 14.3 per cent of total assets in 2012 to 23.3 per cent of total assets in 2013.

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Spanish Banks Showing Signs of Recovery

25-AprilTwo of Spain’s largest lenders are showing signs of recovery as bad debts decrease and overall lending increases. Sabadell and Caixabank have both reported a drop in their bad-debt ratio, with Sabadell’s ratio falling from 13.6% to 13.5% over the last three months to the end of March, and Caixabank’s from 11.7% to just 11.4%.

The Spanish financial industry was hit hard by the 2008 financial crisis and a large-scale crash in the country’s housing market. Many of Spain’s biggest lenders were left with massive unpaid mortgages, resulting in a nationwide shortage of capital that required government intervention.

Billions of euros were pumped into the Spanish banks in order to fuel liquidity and ease the financial sector’s capital issues, with largely lacklustre results. But a recent increase in property development indicates that Spain may be turning around after a long-term decline in asset prices.

Spain recently exited recession and anticipates a 1.2% annual growth rate during the rest of then year. Chief financial officer of Sabadell Tomas Varela said that the country is gradually recovering from the 2008 property market crash: “We do believe this marks a shift in the trend”, the CFO stated in a press conference.

Economists believe that the decline in bad debts at Caixabank and Sabadell could be repeated at many of Spain’s other lenders. Spain’s largest banks include Santander and BBVA, both of which were hurt by the country’s property market decline but were insulated by their large international finance operations.

Interestingly, the two banks reporting a decline in bad debt ratios did not require a government stimulus following the 2008 property market collapse. Spain requested a £34 billion emergency aid package to improve the state of its financial sector in 2012 – a move that was followed by large-scale public sector spending cuts.

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Bank Branches Closing as Customers Manage Accounts Online

19-AprilMore than 5,300 bank branches closed last across Europe as customers switch from retail branches to online banking. Analysts believe that a growing number of banks will scale back their retail branches over the next year due to declining usage.

Despite the massive increase in the number of customers using online banking, most of the major retail banks have held back from making large-scale cuts. Older banking customers, many of whom have held accounts for decades, may feel alienated if their local branches are closed due to low customer usage.

Other fears from leading banks include worries that closing branches in rural areas could send customers to competing banks. However, the closure of branches is one of several successful cost-cutting strategies employed by lenders in the wake of the 2008 financial crisis.

According to Reuters, which compiled the figures using year-end statements from some of Europe’s largest retail banks, up to 40 per cent of bank branches in Europe could close by 2020. Consultancy firm Bain & Company believes that the change is due to the “digitalisation” of retail banking that’s occurred over the past decade.

New data from the European Central Bank suggests that the number of branches in Europe measured almost 218,000 towards the end of 2012. Experts believe that by 2020, their could be less than 150,000 branches in Europe, based on current usage of online banking.

The cost-cutting potential of closing retail branches is one of the biggest motivators for lenders to close branches. Analysts at Deutsche Bank believe that retail banking providers could reduce their expenses by as much as 15 per cent by closing many of their branches and opening smaller retail banking centres in key areas.

Jack Napier, Deutsche Banks’ head of European banks research, thinks that banks in the UK could potentially operate with as few as 500 retail branches if enough retail banking customers switch to online banking.

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Homebuyers Face Strict Questionnaires to Qualify for Credit

12-AprilUK homebuyers may find it more difficult to get a mortgage, as lenders deal with a wide range of new regulations aimed at preventing lending to people more likely to default on their mortgages. The new regulations require homebuyers to take strict tests aimed at assessing their ability to cover all aspects of household spending.

Examples of household spending tested by the questionnaires include the costs of childcare, takeout food and more. The measures are part of an effort by regulators based in the City of London to prevent the large-scale unaffordable lending which played an instrumental role in the 2008 financial crisis.

Starting from the 26th of April, applicants for mortgages will be required to offer at least three months of bank records to lenders. The statements will be studied to see if borrowers are able to make steady, timely payments on their home loans based on current interest rates, as well as in the event that the cost of credit rises.

While the new regulations are aimed at reducing ‘reckless borrowing’, critics of the regulatory measures believe that homebuyers can sidestep the precautions through strategic spending prior to applying for their loans. Brokers could, conceivably, just encourage buyers to stay frugal for the three months prior to their applications.

According to mortgage brokers, individuals with high incomes who spend relatively little on luxuries could borrow upwards of eight times their annual income through a mortgage, if their questionnaires provide the right answers. Experts believe that the measures, although well meaning, may not effectively combat reckless lending.

Although few examples of the qualifying questions are available, experts note that existing bank applications ask potential borrowers about the amount they’ve spent on parking, entertainment, holidays, pets and more. As childcare costs will become an important factor in applications, applicants with children could be affected.

While the questionnaires will play a role in determining applicants’ access to home loans, traditional factors such as credit scores and monthly expenses, such as loans for vehicles, will still form the bulk of lenders’ decision making.

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