The Monetary Policy Committee (MPC) of the Bank of England (BoE), at its November meeting, voted by an 8-1 majority to reduce the official Bank Rate by 25 basis points for the second time this year to 4.75%. However, analysts caution that – once the BoE economic forecasts have been updated to factor in the inflationary effect of the October budget tax and spend policies, together with the potential higher inflation and lower growth in the UK if President Trump imposes next year blanket tariffs on U.S. imports – the BoE is likely to loosen interest rate policy more slowly in 2025.
UK car finance lenders have been urgently meeting regulators and ministers in a desperate effort to prevent a collapse in transactions on UK forecourts. Many UK car finance lenders have temporarily halted extending new credit in the wake of an Appeal Court judgment that went much further than expected in finding lenders liable for failing to disclose dealer commissions. Those who have suspended activities include, among others: Close Brothers; Investec Bank plc; Santander UK plc; Secure Trust Bank; and Zopa Bank Ltd. Royal Bank of Canada analysts estimate that provisions may be required by the following banks: Lloyds Banking Group plc = £2.5 billion; Santander UK plc = £1.1 billion; Bank of Ireland = £630 million; Barclays plc = £350 million; Close Brothers Ltd = £250 million; and Investec Bank plc = £30 million.
Shares in UK banks rose as lenders escaped a levy on their profits to help plug the gap in public finances as part of Chancellor Rachel Reeves’s first Labour Government budget. The Chancellor made no mention of any tax increase on banks in her speech nor did documents accompanying the budget mention any such tax. Financial equality campaigners had advocated for an increase in the surcharge that banks pay on their liabilities, known as the bank levy, or a so-called “windfall” tax on their profits.
The UK will soon take steps to ease so-called ringfencing rules on banks introduced after the 2007-09 financial crisis in order to improve the sector’s competitiveness, according to City Minister, Tulip Siddiq. The ringfencing rules – which separate consumer lending operations from more volatile investment banking – were introduced after the UK’s taxpayers had to bail out several failing lenders during the financial crisis. Reforms include raising the retail deposits threshold for the rules to apply to £35 billion from £25 billion.
The Bank for International Settlements (BIS) has concluded, from research on last year’s banking turmoil, that bank regulators should ensure that individual entities of global banks have sufficient standalone liquidity, rather than just monitoring risks at a group level. The BIS report highlights that regulators could boost their monitoring by: improving the frequency of bank liquidity reporting; providing more granularity on how banks are funded; and applying the tools to individual entities, among other recommendations.
During the month, both S&P and Moody’s downgraded the long-term credit ratings of Toronto Dominion Bank by one notch to reflect the severity of its AML-related deficiencies and the failure of its operational risk management which has resulted in a substantial US$3.09 billion penalty from U.S. authorities and a balance sheet asset cap on its two U.S. banking subsidiaries. Moody’s also lowered the outlook of BNP Paribas SA to “Negative” as part of a general rating action on 7 French banks to reflect the weakening capacity of the Government of France to support the country’s systemic and strategic banks in case of need. In addition, Moody’s lowered the outlook for OneSavings Bank plc to “Negative” to reflect the risk of further deterioration in asset quality as the loan book continues to plateau after a period of rapid expansion as well as reflecting possible long-term profitability challenges for the Group due to competitive pressures from larger banks with greater pricing power. Meanwhile, S&P upgraded the long-term credit ratings of Clydesdale Bank plc and maintained the “Stable” outlook to reflect the completion of the acquisition by Nationwide Building Society as well as the likelihood that the Bank will benefit from the support of the higher-rated Ultimate Parent. Fitch lowered the outlook for the Société Générale Group to “Stable” in response to the downgrade of the sovereign outlook of France to “Negative” to reflect the current political uncertainty and the significant fiscal challenges facing the country.