News Europe
UNEMPLOYMENT AND INFLATION STUCK AT BLE LEVELS
prices that declined by 0.2% in the year to June. June was the ninth consecutive month that inflation has been below 1.0% - referred to by Mario Draghi as “the danger zone”. While the European Central Bank (ECB) doesn’t expect deflation, it is worried about low inflation, which spurred it into cutting the Bank’s refinancing rate by ten basis points from 0.25% to 0.15% and lowering the deposit rate into negative territory.
However, this rate cut might be too little too late as roughly 18.5 million people were unemployed in May within the currency bloc. The prevalence of joblessness across the Eurozone is diverse, with countries such
as Austria and Denmark recording a 4.7% and 5.1% unemployment rate for May, respectively,
compared to
Spain which suffered with 25.1%. More than one in every two Spaniards younger than 25 are unemployed.
Given that the ECB markedly changed monetary policy last month it is unlikely that any further revisions will be made when the Governing Council of the ECB release their rates decision on Thursday this week. However,
further
worries over the momentum of the economic recovery are represented by the latest Purchasing Managers’ Index (PMI) for the Eurozone, which fell to 51.8 in June.
This is the lowest level since November but still above 50, the figure that denotes growth,
slowing
momentum could spur the ECB into action once again.
Cebr believes that further interest
rate cuts would
have a minimal impact on the Eurozone’s economic outlook.
More successful policies should come from TO ENTRY FOR NEW BANKS REVIEWED
The review shows that the changes introduced last year have led to a number of positive developments. In the twelve months following the changes, the PRA authorised five new banks and there has been a substantial increase in the number of firms discussing the possibility of becoming a bank with the regulators. In the twelve months to 31 March 2014 the regulators held pre- application meetings with over 25 potential applicants. These firms have a range of different business models from retail and wholesale banking to FCA-regulated Payment Services firms who are looking to enter the banking market and
offer deposits and lending to their current client base (including small SMEs) and others who are proposing to offer a mixture of SME or mortgage lending funded by retail and SME deposits.
The review found that the new ‘mobilisation’
option
(where authorisation is granted when a firm has met key essential elements but with a restriction on their activities due to some areas still requiring completion) has been helpful for applicant firms that may previously have faced challenges in raising capital or investing in expensive IT systems without the certainty of being authorised. In the twelve months to 31 March
2014, three of the five newly authorised banks used the mobilisation option, and a number of firms in the pre- application stage have also shown an interest in this route.
Capital and liquidity requirements for new entrants are now lower than before, but are set against a requirement for a firm to show the regulators that it has a clear recovery and resolution plan in place in the event of it getting into difficulty in the future. These changes are a real reduction in the barriers to entry, and now mean that the minimum amount of initial capital required by a new entrant bank is £1m
compared to £5m under the previous regime.
Commenting on the review, Andrew Bailey, Chief Executive of the Prudential Regulation Authority said:
“It is clear that the changes introduced last year have been positive for new entrants and will make a contribution to increasing competition and thus benefit customers. Reducing barriers to entry can be achieved alongside continuing to ensure new banks meet basic standards that prevent risks to the safety and soundness of the UK financial system. The feedback we have received from the new banks has been very encouraging.”
Martin Wheatley, Chief Executive of the Financial Conduct Authority said:
“The changes will ultimately offer consumers greater choice and encourage innovation. In any sector newcomers to the market bring fresh thinking,
and
challenge established firms to consider how they can offer a better deal or improve the service they offer. I’m keen we maintain
this
progress, and want to see greater competition in retail banking work for the benefit of consumers.”
The PRA intends to publish statistics regarding banking authorisation annually.
FINANCEMONTHLY 13 the countries within the
single currency union, which need to address the underlying problem of a lack of competitiveness.
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