Tougher Regulations Proposed for Non-EU Banks

February-28Non-EU banks operating in the UK could face tougher regulations and restrictions in order to prevent a repeat of the 2008 financial crisis. The Bank of England hopes to establish new rules forcing non-EU banks to establish subsidiaries in the UK if they wish to take deposits.

This would allow the banks to be regulated by the UK government under the PRA – the Prudential Regulatory Authority. Banks that do not take deposits from the public are classified as independent branches and are subject to different, less extensive, rules regarding conducting business in the UK.

The Bank of England hopes that the new rules will attract Chinese banks, which will operate under the branch system. This could play a major role in making London a worldwide trading hub for the yuan currency.

Prudential Regulatory Authority deputy governor Andrew Bailey spoke to the BBC about the proposals for new regulations: “We are much more comfortable if branches from overseas are conducting wholesale business, that is things like trade finance.”

“We are much less comfortable if they are taking deposits from the retail market in the UK and that is born out of difficult experiences we had in the height of the crisis.”

The PRA’s concern is justified due to issues Britain faced during the 2008 crisis over compensation for UK-based deposit holders. The government compensated deposit holders when Iceland’s banking system collapsed, and is now suing the Icelandic government for a reimbursement of its money.

The branch rules would require banks to have a home supervisor and indicate that, in the event of another financial crisis, they could be wound up with a limited impact on the UK’s financial health. Mr Bailey believes that the regulations will prevent high risk banks from operating in the UK financial services market.

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After July’s meeting on Thursday, the BoE announced historically low interest rates would be held at just 0.5% and that they would be injecting another £50 billion into a struggling economy. This comes at a time when the UK is already in a double dip recession and fears are growing that the recession will continue for yet another quarter or perhaps be upgraded to a full-blown recession in the months to come.

The Monetary Policy Committee acted after the Bank’s Governor, Sir Mervyn King, stated in previous days that he was in shock over the state of financial affairs in Britain and how they had degenerated continually within the past half year. This was revealed during the twice-yearly Financial Stability Report which had been made public the previous week.

According to economists, the UK economy is continuing to shrink and perhaps in the best case scenario, remains flat as of the second quarter of 2012. This would mean that the final quarter of last year as well as the first two of the current year have been mired in recession and does not bode well for prospects in the near future. Although there is no actual way to define a ‘depression’ which can be agreed upon within the UK or in other countries, it is generally labeled as such when a country sustains a recession for at least two years in a row.

Even so, this new round of QE is not expected to provide great yields but may boost confidence a bit. The Deputy Director General of CBI states that the UK should also consider alternatives such as investing in “high grade corporate paper and bank bonds.” He further contends that although this isn’t the final solution, it will give a boost to some businesses during this difficult time.

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As recently as two days ago, the BoE was predicting a 0.1% growth in the GDP. However, today a policymaker for the Bank of England is now saying figures ‘could’ show a slight decline in growth. This would place the UK back into a recession, the first double-dip recession since 1975 and it would not be good news for those already suffering from budget cuts imposed by the austerity measures government adheres to.

This could be devastating news for the nation as it finally appeared as though manufacturing was back on track and services were picking up as well. Unfortunately, the growing debt crisis in the eurozone is wreaking havoc not only in the UK but around the globe as well, evidenced by yesterday’s markets.

Although the UK is not part of the single currency, they have been part of the bail out with quantitative easing which means that economic problems on the continent will surely affect Britain. As Holland’s president resigned and Nicolas Sarkozy is probably on the way out, Angela Merkel is continuing her drive for austerity in the EU.

Tomorrow’s data will show if austerity is working in the UK and if it is then Ms Merkel has a valid point. If not, if the UK is plunged into a double-dip recession, this does not bode well for Merkel or Sarkozy who is battling it out in a second round election for his job. No one knows what tomorrow will bring, hope or gloom, but at the moment it is not looking good.

With a turnaround in just 2 days in their predictions, the BoE has everyone waiting with baited breath to see what shape the UK economy is in. It can only be hoped that a recession is avoided as austerity is already crippling many social programmes and killing jobs by the tens of thousands.

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Banks being warned against bonuses this year

The Bank of England has advised banks to bolster their finances by limiting the amount of bonuses this year and Chancellor George Osborne has given a warning that this advice needs to be heeded. With a credit crisis looming ahead, the BoE feels that money would be put to better use building a stronger capital position.

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BOE Anticipates Requests for More Taxpayer Funds from UK Banks

With the second credit crunch in the last decade threatening an already wavering UK economy, the Financial Policy Committee (FEC) for the Bank of England (BOE) is anticipating an elevated need for taxpayer funds amongst British banks. Meanwhile, the BOE is instructing financial institutions to limit the amount of dividends given to shareholders, and bonuses given to employees, in order to decrease the probability of such an outcome.

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BoE Halts an Aspect of Its Quantitative Easing Programme after Bond Prices Are Raised

In an unexpected and surprising move, the Bank of England (BoE) recently stopped buying bonds that have a 2017 maturity date with a coupon of 8.75pc, after bond dealers rose the price to more than 140 pounds before Monday’s auction. This marks the first time such an occurrence has happened, as the BoE has never stopped buying government bonds in a reverse auction – a sale in which market makers/traders sell gold certificates (gilts) to the Bank of England.

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Confederation of British Industry warns BoE to resist printing money

In a statement to Reuters, a spokesperson for the Confederation of British Industry said that it would be a mistake to hastily print more money in a second round of quantitative easing (QE2) because there is still a risk of inflation. The biggest lobbying group for business believes that the central bank should not fall prey to the political pressure being placed on it to print money or a new stimulus.

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BoE stands ready for next round of QE as borrowing tops records

According to the latest statistics, government hit a record high for August borrowing due to an increase in spending. Public finances are now under even greater pressure and BoE is at the ready to begin printing money for another round of quantitative easing. This could come as soon as October if given the go ahead.

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Unemployment Rates Pressuring Government to Act

With the fastest rate in unemployment in two years, increased pressure is being put on government to stimulate economic growth. This rise in unemployment is directly attributed to record job losses in the public sector, according to official data.

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