Return to Insights

FCA Summon Banking Execs to Address Savings Rates

Saving rates to be addressed by Banking Execs, interest rates held by RBA, and US yield curve inversion hits deepest level.

The FCA has summoned a meeting of executives at HSBC, NatWest, Lloyds and Barclays to discuss savings rates amid accusations that they are failing to pass on higher interest rates. The FT were the first to comment on the meeting and stated that “The FCA and the executives are planning to discuss the pricing of cash savings and how banks communicate with their customers on rates, said people familiar with the agenda.” They continued by stating that “the meeting could result in a “savings charter” as they cited sources close to the situation. The topic comes as the Bank of England recently conducted their 13th consecutive rate hike to bring borrowing rates to fresh 2008 highs as some price in the prospect of Threadneedle Street’s rising its benchmark rate to 6%.

Last week, Jeremey Hunt described how banks were “taking too long” to pass on savings rates to consumers, particularly in the case of instant access accounts. The chancellor’s comments follow the Treasury Select Committee’s concerns that savings rates were not being passed on to consumers and highlighted that “something is going wrong when banks are profiting from rising interest rates while savers aren’t seeing the benefits.” Their concerns saw them similarly summon execs at HSBC, NatWest, Lloyds and Barclays earlier this year to discuss the matters including their soaring net interest incomes and margins.

As we looked at in February, figures evidenced in annual reports reveal that these banks’ net interest income (the difference between what banks charge consumers to borrow vs what the pay on consumers’ savings) has soared given a rise in their net interest margin. Figures evidenced in annual reports reveal for example that Lloyds’ net interest margin rose 0.4 percentage points from 2.54% to 2.94% which saw their net interest income rise from £11.2bn to £13.2bn over the course of that year. Meanwhile NatWest saw their net interest income rise £7.5bn to £9.8bn as their net interest margin rose 0.55 percentage points from 2.3%.

UK Finance, who act as the trade body for the banking sector, maintain that since savings and mortgage rates “aren’t directly linked” they subsequently “move at different times and by different amounts”. Some are also describing the FCA’s approach as regulatory overreach as banks try to prepare for the potential for a rise in defaults.

 

RBA Hold Interest Rates

This morning saw the Reserve Bank of Australia maintain their benchmark rate at 4.1%, against expectations of a 25bps rate hike. The decision to pause their monetary tightening followed the 25bps hike in June which added to the RBA’s 400bps of hikes seen since last May. Citing the drop in headline inflation (which retreated to 5.6% in May), the RBA maintains that inflation has passed its recent peak. Nevertheless, against the CB’s dovish decision, policy makers rhetoric remained somewhat hawkish indicating that further rate hikes may be needed down the line to bring inflation back to their 2-3% target.

US Yield Curve Inversion

Yesterday the US 2/10-year yield curve inversion hit its deepest level since 1981 as financial markets price in the potential for rising rates and economic uncertainty. During Monday’s session the yield on the two-year surpassed that of the 10-year by as much as 110.9bps with the 2-year at 4.96%.

Given that this signal has been a prelude to every recession in the US since 1950 (within the space of two years), many investors are weighing up the possibility of a recession. Nevertheless, as analysts including Erin Browne of Pacific Investment Management Co. have pointed out “[the] yield curve inversion may not be as good of an indicator as it has been in the past, particularly given the enormous amount of quantitative easing undertaken by global central banks”.

Yesterday’s yield curve inversion came amongst a choppy session in the US which saw the ISM manufacturing data for June soften to a three-year low.

Ready to talk FX?

Get in touch with one of our friendly and knowledgeable experts to see how FX strategy can drive commercial impact in your business.

Contact us

Related
Commentary

Find out how we have helped our clients meet their hedging requirements.

US Growth and Inflation in Focus 

Thought for Thursday, markets look towards US GDP data release this afternoon, nationalisation of UK railways announced by Labour, and release of US PCE inflation data.

Morning Update

Word of the week Wednesday, rebound in share price for Tesla, forecasts for the price of oil slashed by Russian Ministry of Economic Development, and what's happening today.

UK Announces Fresh Military Aid Package for Ukraine

Travel Tuesday, fresh military funding aid announced for Ukraine, FTSE 100 markets close at record highs, strikes in May will cause disruption for UK airports.

US House Approves Additional Aid for Ukraine

Macro Monday, military aid package for Ukraine approved by US House, lowest level of trade for oil prices, and what's happening today.

Israel Hits Iran’s Isfahan Province

Friday feeling, Israeli missile strike on Iran, today's speech from the PM on sicknote culture, and lower-than-expected UK retail sales for March.

Jeremy Hunt Going for More Tax Cut Headlines

Thought for Thursday, Jeremy Hunt speaks about further tax cuts in Washington, US House Speaker wants action for votes on US foreign aid bills, second year for Sudanese conflict, and what's happening today.

Headaches Remain for Threadneedle Street

Word of the week Wednesday, higher-than-expected UK inflation, worst day in nine months for FTSE 100, and latest data release for Chinese growth.

Tensions Continue to Rise in the Middle East

Travel Tuesday, continued geopolitical tensions in the Middle East, European Council look to unify Europe's capital markets, highest level of UK unemployment since last June, and new sanctions on aluminium cause prices to rise.

Find out more about our foreign exchange solutions
Contact us