According to the founder of Metro Bank, Anthony Thomson, there could be as many as 15 new banks opening their door to customers in the UK in less than half a decade. Thomson launched his own Metro Bank in 2010, with backing from US banking entrepreneur Vernon Hill, making it the first corporation to be awarded a full banking licence since the 19th Century.
Thomson was talking to delegates at the Future for Regional Banking conference in Newcastle where he outlined his vision of a series of regionally-based banks which would then expand their reach organically to become national corporations. An announcement was made in March that the amount of capital necessary to start a bank will be relaxed in order to stimulate competition and remove the barriers to entering the market that new competitors face. Since the financial crisis of 2008, there have been a series of public blunders which have shaken consumer confidence in the banking system. Many of banking corporations were found to have mis-sold payment protection insurance or even signed up customers without their knowledge, while others were near potential meltdown.
Some institutions, like Northern Rock, became nationalised by the UK government while the Irish Government chose to nationalise Anglo Irish Bank and bring in banking expert Mike Aynsley as the CEO of its newly named Irish Bank Resolution Corporation Limited. While this decision was criticised by some, the nationalisation process pulled the banks from the brink of potential collapse and Aynsley successfully reduced potentially toxic asset portfolios from €115 billion in 2008 to around €14 billion by the end of last year. Thus far, however, the ‘Big Five’ banks still control the vast majority of money in the UK despite Lloyds-Halifax and RBS-NatWest being part owned by the taxpayer.
Over the last four years, the banks have been solidifying and preserving their assets while the suggestion is now that they should be looking to future growth initiatives in order to stimulate growth in the economy they damaged. The UK government is now putting pressure on the banks to commence lending to small firms and mortgage borrowers, particularly first-time buyers through schemes like ‘Help to Buy’. With new initiatives and encouragement for smaller businesses, it may provide the catalyst for a flurry of smaller banks which are able to better serve the needs of local people who have lost trust in the sector. Whether these firms can match the rates and offerings from their international competition remains to be seen.
Ministers in Europe are due to meet again soon to continue talks on how the banking system should be reformed. Having already previously spent over 20 hours discussing potential changes, final agreements were not reached and no conclusion decided in terms of restructuring. The ongoing discussions are likely to cause disruption in several markets as the uncertainty continues. The meeting will take place between European ministers on Wednesday after scheduled talks failed last Saturday.
The biggest issue that arose during the talks at the weekend was the order in which creditors and investors should contribute to the restructuring of the banks. There was a particular disagreement in regards to whether savers with over £85,000 in any bank account should be included. Ministers from Britain were especially keen to ensure more flexibility on how depositors would be affected by the changes. Michael Noonan, the Irish finance minister, warned that this second meeting could still prove futile in coming to a decisive end to the debate. He said, “There is no guarantee it will reach conclusion, it is principally an issue on the euro and non euro nations. Pierre Moscovici, the French finance minister had a more optimistic outlook on the planned meeting and was confident that a deal would be brokered.
The aim of having a deal established last weekend would have proved to be an incredibly essential step in putting the banking system in Europe back together. Rescue efforts and supervision of banks within the EU as opposed to member states would have been one such policy change. Regardless of the skepticism being expressed by many important figures who will attend the second meeting, it is evident that if a deal does manage to be put together then it will be a hugely positive step forward for European banking. The global chief economist of Unicredit Research, Erik Nielson, released a statement following the first meetings saying, “All said and done, progress is being made… I am pretty confident that the Ecofin will find a way to agree when they meet again on Wednesday ahead of the summit”.
Nationwide and Barclays have come under scrutiny recently for increasing the amount that they are lending to business and home-owners. Due to an investigation into this by the country’s top banking regulator, they now face being penalised for their actions. The regulator wants them to comply with a “leverage ratio” target which it is believed they would have to either sell off existing loans or find another way to raise more capital. It has been suggested that Barclays could have to find as much as £8 billion to meet the regulators requirements. If they decide not to do this then their other option is to reduce their assets by up to £280 billion.
In the case of Nationwide, the consequences could potentially be even more drastic due to its mutual status as a building society. This status changes the rules on how the lender interacts with the shareholders. An official from Nationwide commented that, “The impact of the core Tier 1 leverage ratio is to effectively penalise the very banks that have been doing the most to support the economy. It is hardly surprising that banks are wary about increasing their loan books when regulation can change so suddenly”.
The Prudential Regulation Authority is now expecting to receive a strategy from both banks by the end of June on how they will reach the targets. In response to demands, Barclay’s issued a statement confirming that the bank was willing to stay “in discussion” with the Prudential Regulation Authority in order to reach an amicable resolve over the dispute in regulation. These new regulations were revealed at the same time as an investigation into a £27 billion hole was discovered across five of Britain’s biggest banks. Fines have already been imposed for those involved however; the amount of the fines is nowhere near comparative to the amount of the shortfall. Regulators have also investigated risk weighted assets and have instructed eight banks to increase their risk weighted assets by £169.4 billion between them. Royal Bank of Scotland is most affected by this regulation and will have to adjust figures by approximately £56.3 billion.
A meeting of important political and business leaders from Detroit recently took place on an island resort. The meeting, which occurs on an annual basis, revolves around the topic of the regional economy. During the gathering on the island, known as the Mackinac Policy Conference, everyone discussed the future of Detroit’s financial future, striving towards policies that are inclusive of innovation and entrepreneurship. The concept of a 21st century global market was one that was spoken of especially frequently.
Under the guidance of Governor Rick Snyder, Detroit was not long ago placed under state control. The decision to do so can be understood by the $15 billion debt that Detroit is crippled with. It is indeed an area on the brink of municipal bankruptcy. The Governor himself was in attendance at the Mackinac Policy Conference, as were four of the candidates who are running for Mayor in the upcoming elections. However, with the massive debt that Detroit is carrying, it is possible that they are competing for a job which may not exist for much longer. State control will continue in the region for at least another 18 months and during this time government officials have their titles but little real power.
The emergency provisions haven’t been received well throughout Detroit with many viewing those imposing sanctions as “unelected dictators”. The debt is spread across many different financial institutions, such as JPMorgan Chase and Bank of America. Attempts to repay some of this debt has created a city that can no longer afford to light its streets or pay for officers to police neighbourhoods. A fact that no doubt contributed to the fact that there were the same amount of murders in Detroit last year as occurred in New York, although the population of New York is eleven times that of Detroit.
When the time eventually comes to declare bankruptcy, things such as the Detroit Institute of Arts have been listed as an asset for sale. The institute contains work from Matisse and van Gogh, although even these incredibly valuable pieces of art will prove of little help in restoring the city to financial equilibrium.
Read more about the financial situation in Detroit by clicking here.