BBA calls for creation of new body to boost investment banking

A new body should be established by the UK government to ensure banking industry regulation does not stifle the sector, according to the British Bankers’ Association (BBA).

Chaired by the finance minister and also including the governor of the Bank of England, the proposed body would play a hand in coordinating policy to ensure that international banks are able to thrive within London. It would also have responsibility for guaranteeing the delivery of policy for international banks and the approach to regulation taken by government bodies and regulators.

The proposal, which was one of 23 included in a recent BBA report on the industry’s competitiveness set out by Britain’s former top financial regulator Hector Sants, is designed to bolster the attractiveness of London as a place for international investment banks to do business.

Other recommendations included making earlier-than-planned changes to the banking tax, and the establishment of an independent agency to determine financial penalties levelled at banks and the way they should pay compensation to customers.

Why has the BBA published these proposals?

London is ranked as the world’s top finance centre in the latest Global Financial Centres Index, regularly compiled by the London-based thinktank think-tank Z/Yen.

However, the BBA warns that its number one position is under threat, with a number of factors – including uncertainty on taxation, unilateral regulation and a dip in profitability across the industry – causing its appeal to wane among international investment banks.

Anthony Browne, chief executive of the BBA, described wholesale banking as an “internationally mobile industry” and said there is a genuine chance that London could become less and less attractive to the banking community. Many banks have already begun moving jobs away from the city, he pointed out, while Britain’s market share of capital formation-based activities – from initial public offerings to cross-border lending – is currently either static or declining.

The report highlighted a number of concerning statistics. Since 2011, there has been an eight per cent downturn in employment and a 12 per cent reduction in assets within the UK banking sector. Over the same period, banking assets in the US, Singapore and Hong Kong have grown by 12 per cent, 24 per cent and 34 per cent respectively.

What’s more, the wholesale industry’s return on equity has fallen from an average of 18 per cent a year between 2000 and 2006 to ten per cent from 2011 to 2014. A further decline to just 3.5 per cent is expected by 2017.

Why Britain needs a strong banking industry

Unsurprisingly, the BBA report was also quick to draw attention to the positive impact that the banking industry has had on Britain as a whole.

Financial services remains the country’s biggest export activity, and is also the largest contributor to the UK’s balance of payments – making up 45 per cent of the total surplus in services.

Furthermore, banking contributes nearly five per cent of the UK’s gross added value, generated £31 billion in tax last year, and employs more than 405,000 people. With £4.5 trillion in international banking assets as of the end of 2014, the UK banking sector is the third largest in the world.

Given the great importance of banking to the UK, Anthony Browne insisted there is no room for complacency when it comes to attracting international investment banks to the country.

“We have to act now together with regulators and government to maintain the UK’s leading position in the global competitiveness race,” he said.

“We are setting out a joint plan of action for industry, regulators and the government to tackle together the local and global threats to our competitiveness. Taking action now will secure the UK’s position and maintain the considerable contribution that international wholesale banking makes to the British economy.”