Category Archives: Banking

Bitesize: Common ownership across UK banks: implications for competition and financial stability

Paolo Siciliani and Daniel Norris

Asset managers make it more convenient for savers to diversify their investments in stock markets. They are also in a better position to monitor the managers of firms in their portfolios, even if they adopted a passive investment strategy. However, it has been argued that competition might be weakened when firms competing in concentrated industries, such as airlines, share the same small number of institutional investors as their top shareholders.

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Filed under Banking, Bitesize, competition, Financial Markets, Financial Stability

A CAMEL ride: Retracing the history of UK banking through a new historical database

Sebastian de-Ramon, Bill Francis and Kristoffer Milonas.

Navigational aids are helpful when visibility is poor or when landmarks are unfamiliar, especially when journeying to new destinations. In a recent working paper, we introduce a new regulatory dataset, the ‘Historical Banking Regulatory Database’ (HBRD), that provides a clearer view of the UK banking sector and helps navigate issues difficult to explore with other datasets. This post describes the HBRD, its benefits for research and policy analyses, and what can be learned from it.

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Filed under Banking, Microprudential Regulation

Central Bank Balance Sheets: Past, Present and Future

James Barker, David Bholat and Ryland Thomas.

Central bank balance sheets swelled in size in response to the financial crisis of 2007-09. In this blog we discuss what makes them different from the balance sheets of other institutions, how they’ve been used in the past, and how they might evolve in the future as means to implement novel policies – including the revolutionary possibility that a central bank could issue its own digital currency.
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Filed under Banking, Economic History, Macroeconomics, Monetary Policy

Bitesize: How do fees affect overdraft pricing?

Dom Tighe.

In recent years there has been a notable move to lenders charging a daily or monthly fee on overdrafts. Although not technically an interest rate, they are nonetheless a cost of borrowing. And in some cases, may have replaced interest charges entirely.  So are customers charged more than the interest-charging overdraft rate alone suggests?

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Filed under Banking, Monetary Policy, Uncategorized

Bitesize: How do fixed mortgage rates compare across loan-to-value ratios?

Alister Ratcliffe

Since 2012, long term rates have fallen and there have been various other policy packages to boost credit availability and lower borrowing costs.  But how have these fed through to different types of fixed mortgage rates?

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Filed under Banking, Monetary Policy, Uncategorized

Bitesize: Which fixed-rate bond term is most popular?

Louise Johnston

How have falling retail deposit interest rates affected savers’ behaviour?  One place to look is the market for fixed-rate bonds, which give a guaranteed interest rate for a set period of time.  These rates tend to be higher than instant access accounts, because customers must tie up their deposits to receive the higher rate. Fixed-rate bonds represented around 40% of new time deposits in January 2017. Continue reading

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Filed under Banking, Monetary Policy

Bitesize: How did the Bank Rate change affect business loan rates?

Hannah Phaup

Evidence suggests that small and medium-sized businesses (SMEs) rely more on bank credit than other businesses.  So how has their cost of borrowing fared since last year’s Bank Rate cut?  And how do their rates compare with overall businesses? Continue reading

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Filed under Banking, Monetary Policy

Central Bank Digital Currency: DLT, or not DLT? That is the question

Simon Scorer

The topics of central bank digital currency (CBDC) and distributed ledger technology (DLT) are often implicitly linked. The genesis of recent interest in CBDC was the emergence of private digital currencies, like Bitcoin, which often leads to certain assumptions about the way a CBDC might be implemented – i.e. that it would also need to use a form of blockchain or DLT. But would a CBDC really need to use DLT? In this post I explain that it may not be necessary to use DLT for a CBDC, but I also consider some of the reasons why it could still be desirable.

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Filed under Banking, Currency, Market Infrastructure

Taking a long hard look in the mirror: should the leverage ratio reflect Pillar 2?

Mounir Kenaissi and Mariana Gimpelewicz.

A key feature of the post-crisis regulatory reform agenda has been the introduction of a leverage ratio to complement the risk-weighted framework. The FPC designed the UK leverage ratio to mirror risk-weighted capital requirements so the two frameworks move in lock-step over time and across firms. For the sake of simplicity however, the FPC did not reflect Pillar 2 capital charges, which aim to capture risks that cannot be modelled adequately in the risk-weighted framework, in the leverage ratio framework. In this post we explore what happens to leverage and risk-weighted requirements once Pillar 2 are taken into account.  We find that in keeping the leverage ratio simple, the perfect lock-step interaction with risk-weighted requirements no longer holds, which could prompt riskier banks to take on more risk.

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Filed under Banking, Macroprudential Regulation, Microprudential Regulation

Has there been a sea change in the way banks respond to capital requirements?

Sebastian J A de-Ramon, William Francis and Qun Harris

Shakespeare first coined the term ‘sea change’ in The Tempest to describe King Alonso’s lasting transformation after his mystical death by drowning. Resting five fathoms deep, Alonso suffers a sea change into something rich and strange, with coral for bones and pearls for eyes. In a recent working paper, we explore for evidence of a possible sea change in UK banks’ balance sheets using data spanning the 2007-09 crisis. Our initial dive into the still murky, post-crisis waters shows signs of something strange and unrecognizable, with UK banks, in response to higher capital requirements, increasing the level and in particular the quality of capital more after the crisis. This post describes our dive and its findings.

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Filed under Banking, Macroprudential Regulation, Microprudential Regulation