Connect with us

Banking

European Investment Bank – the EU’s Northern Rock

Bob Lyddon

At the Brussels EU summit at the end of June David Cameron agreed to President Hollande’s €130bn “growth” plan for the EU (this, in reality, is a “spending” plan). The major part of that “growth” would emerge via increased lending from the European Investment Bank (EIB) to public-sector projects. Possibly as much as an extra €100bn of lending is planned, mostly funded through new bonds issued by the EIB, but with the balance – €10bn – coming in the form of a call on the subscribed capital.Bob Lyddon

All European Union member states are shareholders in EIB, and they have subscribed to a total of €232bn in capital, of which only €11.6bn had been called prior to this exercise. Since the United Kingdom is a 16% shareholder in EIB, it’s 16% share of a €10bn capital call is EUR1.6bn. In turn, that €1.6bn is part of the UK’s existing uncalled commitment of €35.7bn.

David Cameron has hailed the expansion of EIB’s loan book as good for growth at a time when commercial banks are not lending, and particularly into the private sector.

This is an odd comment since most of EIB lending is to the public sector, and the remainder is guaranteed by banks: EIB does not engage directly with the private sector. However by inserting itself as an intermediary between capital-holders and borrowers it has impinged on the domain of commercial banking, whose role should be assessing credit risk, applying funds to projects that deliver a pay-back and pricing risk accordingly.

EIB, on the other hand, because it directs most of its lending to public-sector projects, plays a major role in expanding the public sector, misdirecting economic resources towards projects that produce little in the way of financial returns, and usurping the role of commercial banks. It does this by:

  • Lending for longer and at lower rates than are available from commercial sources;
  • Lending on the basis of limited analysis of the financial returns generated by the projects: it feels it does not need to, because failing projects can draw on the taxpayer to pay back EIB’s loans.

EIB is the embodiment of the difference between a free market economy and a social market economy, in which the government and not the marketplace makes major decisions about allocation of resources. EIB embodies everything the EU claims not to be: a centralised monolith bearing significant resemblance to the Soviet Union.

Soviet projects, like the White Sea canal, drew their subsidy – the difference between costs and returns – from Gulag slave labour. The EIB draws its subsidy from recourse to the taxpayer:

  • Its bonds are AAA-rated for this reason and can be sold at low yields giving it a refinancing advantage over commercial banks
  • Its loans are to entities that can draw on the taxpayer
  • It can draw on the taxpayer itself via a capital call if things go wrong.

There is thus no moral hazard in either the EIB’s borrowing or its lending. On both sides it abuses the credit capacity of the ultimate private sector – the taxpayer – to transfer resources to the public sector.
The EIB has been in operation for 40 years. It has “invested” €400 billion in public infrastructure. Infrastructure should, according to social market economic theory, directly enable economic growth and prosperity. This theory is core to the European Union’s actions and policies.

The stagnation of the EU economy, the failure of the 2000 Lisbon Agenda, the debt crisis in the Eurozone, and bailout of public sector borrowers (i.e. EIB’s borrowers and shareholders) demonstrate the utter failure of the approach of which EIB is a cornerstone.

EU Northern Rock Table
The European Investment Bank has distorted capital markets by raising €400 billion at the risk of EU taxpayers, then investing it inefficiently in projects that increase taxpayers’ liabilities which do not bring economic benefit. It is a market-distorting anomaly that should be stopped, not expanded, so that resources can be allocated by the market. Instead EIB has an existence because it sits at the confluence of political objectives (politicians creating spending and the illusion of economic growth now by selling IOUs on future tax revenues) and the Basel Bank Capital Adequacy regime installed by politicians and favouring lending to two segments:

1.    Real estate
2.    Governments themselves

There are eerie parallels with Northern Rock, a market-distorting real-estate lender that convinced itself that its business was risk free. Northern Rock attained to a 25% share of new UK mortgages before it became illiquid. All its new money was borrowed from the capital markets, based on its credit rating, with very little in the way of own funds should things go wrong. It geared itself up based on the theory – backed by the Basel Capital Adequacy regime – that real estate lending is very safe and needs very little capital to back it.

When they did go wrong, the taxpayer had to step in. That is not necessary in the case of EIB because the taxpayers own it already and are exposed up to €232bn.

The European Investment Bank has geared itself up on the theory that lending to governments and the public sector is very safe and needs very little capital to back it, with, as a second string of activity, lending to SMEs upon which it does no credit analysis under the guarantee of commercial banks. Again – under the Basel Capital Adequacy regime – lending against bank guarantees is very safe and needs very little capital to back it.

Moodys’ has recently put EIB on its watch list for possible downgrade, the first indication that all may not be so very rosy at the Bank. The eerie parallels between EIB and Northern Rock are as follows:

The European Investment Bank claims that its loans are “of the highest quality”. As of the end of 2010 it had outstanding loans to the public sector of the following countries, and it continued to build the loan book in 2011 at the same time as the sovereign borrowers in the same countries were having difficulty in raising funds in public markets:

Spain: €64bn
Italy: €43bn
Portugal: €21bn
Greece: €14bn

This amounts to €142bn of loans to subdivisions of countries with financial difficulties, where loan repayment has to be drawn from the same well as repayments of sovereign debt. This speaks of a misallocation of the European Union’s economic resources on the grand scale.

Bob Lyddon is Managing Director of the IBOS Association Central Office. IBOS stands for International Banking – One Solution.  It is an association which fosters inter-bank cooperation.  Currently active in 49 countries and rapidly expanding, its members include Santander, HSBC France, Intesa SanPaolo, KBC, Nordea and UniCredit Bank.

Banking

How new trends are creating the perfect recipe for rapid digital transformation throughout the world’s oldest institutions

How new trends are creating the perfect recipe for rapid digital transformation throughout the world's oldest institutions 1

By Wayne Johnson, CEO, Encompass

Digital banking has drastically changed the landscape of financial transactions over the last few years. Technologies used to be limited when it came to banking, however, now they cover every step of banking or investment services, from behind the scenes due diligence checks to customer facing channels. Embracing this change through emerging technologies is the future for the financial industry.

In recent years, financial technology (FinTech) has developed to facilitate online payments, instant banking, trading, lending, and more.

This new era of digital transformation has been driven by technologies such as artificial intelligence (AI), APIs, blockchain, process automation, and internet of things (IoT) technologies, which have provided vital upgrades to the outdated legacy IT systems institutions historically relied on. The aforementioned technologies streamline and enhance processes, consequently generating a much more reliable and pleasant customer experience. These technological advancements have transformed modern banking operations, changing how the banking industry operates today.

Every new advancement in technology in the finance sector, like expanding a financial service offering to business customers, brings with it new risks and compliance obligations, but the latest trends are creating the perfect recipe for rapid digital transformation throughout the world’s oldest institutions.

The acceptance of new-age technologies

Technology is already driving massive changes in the banking landscape as we know it, and it will be an influential contributor to shaping the industry of the future.

Focus on improving customer experience

One of the areas that banks are increasingly trying to improve through digital banking is customer

experience. Customer expectations for online services are constantly being influenced by the experience provided by big tech companies like Google, Amazon, Apple, and Facebook. With their influence, everyone is looking for a similar experience from their own providers. While digitally savvy Millennials are mainly responsible for the rise in expectations across the board, the wide-spread use of digital technologies in most industries has meant that it is more important than ever for banks to be on top of their delivery at all times.

Wayne Johnson

Wayne Johnson

Interactive banking channels

There has been a huge decline in branch visits in recent years, with some re-evaluating their very role, and an increasing shift from just providing transactional services to allowing for a practical banking experience. This was initially done by moving banks to key locations in town centres, investing in video chat services and offering self-service points – all of which has only been possible through the use of digital technologies. Financial institutions have realised that customers, with their busy and demanding lifestyles, like to have a choice and rely on a full range of channels, online access and 24/7 availability.

The rise of open banking

The increased popularity of open banking and rise in API usage is set to drastically change the industry with the flexibility offered by APIs allowing financial institutions and FinTech’s to put innovation at the heart of their service, resulting in improved customer service and enhanced convenience.

The importance of organisational structure transformation

In order to achieve true digital transformation, financial services institutions need to change their organisation functions from the inside out. To reap the greatest rewards, they must promote a “digital first” strategy internally. Only then will they see a positive change and truly release the benefits of digital transformation and the solutions available today.

The  market is constantly evolving , and adapting, and whilst the survival of traditional institutions is not under immediate threat, key players are going to have to modernise their processes and ways of working to keep up with developing requirements and customer needs.

Financial institutions are now starting to recognise the importance of digitalisation, which many other businesses realised was a priority years ago. This is demonstrated by the emerging trends mentioned, which indicate a rapid altering of the operating environment, from increased customer expectations and improved processes, back-end technology and newer operating models to organisational priorities shifting with the times. Digital transformation can no longer be ignored, and financial services organisations will have to embrace it if they want to remain competitive

 

This is a Sponsored Feature.

Continue Reading

Banking

Standard Chartered Bank partners with Microsoft to become a cloud-first bank

Standard Chartered Bank partners with Microsoft to become a cloud-first bank 2

Standard Chartered Bank and Microsoft Corp. on Tuesday announced a three-year strategic partnership to accelerate the bank’s digital transformation through a cloud-first strategy. This partnership marks a significant milestone for Standard Chartered in making its vision for virtual banking, next-generation payments, open banking and banking-as-a-service a reality. Leveraging Azure as a preferred cloud platform, the companies will also co-innovate in open banking and real-time payments to help the bank unlock new banking experiences for clients.

Standard Chartered Bank partners with Microsoft to become a cloud-first bank 3

Embarking on a cloud-first strategy

As part of its digital transformation, Standard Chartered will adopt a multicloud approach, where significant applications, including its core banking and trading systems and new digital ventures such as virtual banking and banking as-a-service, will be cloud-based by 2025, subject to regulatory approvals. The bank will also adopt a cloud-first principle for all new software developments and major enhancements.

As technology reshapes the banking industry, Standard Chartered recognizes that a cloud-first strategy is critical to the bank’s ambition to make banking simpler, faster and more convenient. By being digital-first, the bank will be able to meet the demand for seamless banking virtually anytime, anywhere, and make banking more accessible to people across its network.

Michael Gorriz, Group Chief Information Officer of Standard Chartered, said, “Cloud is a cornerstone of Standard Chartered’s strategy to meet the present and future banking needs of our clients. Cloud providers have invested massively in the reliability and automation of infrastructure and platforms. Using cloud services improves our ability to be agile and innovative, while increasing our operational efficiency and resilience. As disruption in the financial industry continues, we can focus on client benefits by deploying our solutions quicker and allowing for faster integration of new business models and partners. To realize our digital ambitions, Standard Chartered has chosen Microsoft as a strategic partner and this partnership marks a major milestone for the bank in adopting a cloud-first approach.”

Bhupendra Warathe, Chief Technology Officer, Cloud Transformation at Standard Chartered, added that “The pandemic has shone a spotlight on the need for businesses and banks to be resilient from a risk mitigation, cost and security perspective. With the increasing trend of an always-on digital economy, commercial and consumer clients are looking for applications and services that empower them to do online banking from anywhere, flexibly and efficiently. The speed and scale of continuous innovation offered by Azure allows us to innovate with the latest AI services to meet evolving client needs. We can pilot new apps in one market and scale them rapidly across others. This is especially important for a bank with a footprint as broad and diverse as ours.”

Standard Chartered will adopt Microsoft Azure as a preferred cloud platform to meet the bank’s need for resilient data centers and cloud services and addressing customers’ security, privacy and compliance requirements across the bank’s global footprint.

The first set of capabilities to move to Microsoft Azure will be Standard Chartered’s trade finance systems, allowing for seamless cross-border trade for the bank’s corporate and institutional clients.

The partnership will also advance the bank’s digital workplace transformation with Microsoft 365 and Microsoft Teams providing modern productivity and collaboration tools to Standard Chartered’s 84,000 employees across its 60 markets.

Co-innovating the future of banking

Standard Chartered will also use Microsoft Azure artificial intelligence (AI) and data analytics capabilities to enhance and automate banking processes as well as deliver hyper personalization of its client products and experiences. Co-innovation in open banking application programming interface (API) and Internet-of-Things-based, real-time payments will also help the bank unlock new banking experiences for clients.

Bill Borden, Corporate Vice President of Worldwide Financial Services at Microsoft said, “Cloud computing is an enabler for financial institutions to modernize their infrastructure and systems, to gain the agility they need to respond to competitive pressures, regulatory environments and customer demand. We are committed to helping Standard Chartered Bank in its ongoing digital transformation journey as it strives to address evolving customer needs and build the next generation of banking experiences.”

Addressing the social needs of communities in the emerging markets

Standard Chartered strives to understand the evolving needs of its communities and be an enabler for change. As a part of the strategic partnership, the bank and Microsoft will explore sustainable finance and business initiatives to expand sustainability across the industry.

Continue Reading

Banking

What does the future hold for accessing earnings? Introducing the world’s first Earnings on Demand payment and debit card

What does the future hold for accessing earnings? Introducing the world’s first Earnings on Demand payment and debit card 4

By James Herbert, CEO & founder, Hastee

Let’s begin by looking at how our brains are wired. Think about the hunter-gatherer mindset: when we expend effort, we expect an immediate reward.

It’s therefore no surprise that over time, different areas in society have adapted to our nature as humans. Almost everything we want, we can get on-demand. Whether it’s instantly streaming movies on Netflix, online shopping from Amazon, or fast-food delivery from the likes of Just Eat. And, because of such technological innovations our expectations have accelerated when it comes to the pace of delivery. This isn’t individual to us as consumers in our day-to-day lives, it’s also reflected in the workplace. We ultimately want work to work for us.

Part of this of course comes down to accessing wages. Workers should be able to access a portion of their earned wages whenever they need it, in advance of the monthly pay cycle – whether to help during challenging times or in day-to-day life. We solved this solutionBut, to take this up a level, ready for the future, we introduced the world’s first Earnings on Demand contactless debit card, powered by Visa – giving users access to their accrued earnings in real-time, with the card’s balance dynamically increasing every day they work.

So what is the card, and how will it change how we access earnings in the future?

The basis is very much the concept of Earnings on Demand. At university I set up a company called Brightsparks to connect students with work opportunities so they could earn money. Yet I noticed a common trend. With students often having to wait for the monthly pay cycle to get their earnings, many were having to turn down work simply because they couldn’t afford the travel day-by-day. It became very apparent that not having £20 today could stop them earning £200 tomorrow.

It struck me that payday itself doesn’t have to be a rigid construct that people have to wait for. But this isn’t specific to students. Liquidity is a widespread issue faced by people in all industries and of all ages, and according to our most recent Workplace Wellbeing Study, 82 per cent of people turn to high-cost methods of financing to tide them over when needed.

The Hastee Card effectively makes wages directly accessible: it simply lets people spend a portion of  what they’ve already earned.

Some people might wonder why they’d want to step away from the standard monthly pay cycle. But consider this: the monthly payroll (via a cheque) only came about in the 1960s as an Act of Parliament. Before this, most people were paid weekly in cash. The first major firm that shifted to monthly payments did it for cost-cutting. It worked for the employer more than the employee. In fact, that firm’s employees had rejected their employer’s change of payment type when it was first trialled a decade before (look up ‘Pye Radio’). So the way that workers and organisations interact around pay is not set in stone – it changes as technology and society shifts.

The way we perceive and use money keeps evolving. Apple Pay, Monzo, and PayPal have completely changed the way payments can happen, yet payroll still remains largely unchanged. It’s only a matter of time before disruption becomes more widespread.

Looking at it from the employer side, it has its benefits too. Before the climate changed, businesses were accommodating enhanced workplace benefits such as no-desk policies, flexible or remote working. In all cases by businesses offering more, they tend to see a more engaged, happier and less financially stressed workforce – leading to increased productivity.

Earnings on Demand is ultimately a perk that presents an ethical alternative to high-cost credit options such as payday loans, credit cards and overdrafts. And existing solutions offer zero impact on payroll processes, zero impact on the cashflow of the business and are designed for quick, simple integration.

The Hastee Card is an evolution of this all – preparing for the future. It builds upon and enhances the user experience by reducing friction and offering immediate spending power as well as a path to greater benefits such as cashback and rewards in the not-to-distant future.

Continue Reading

Call For Entries

Global Banking and Finance Review Awards Nominations 2020
2020 Global Banking & Finance Awards now open. Click Here

Latest Articles

The Derry Group launches new employee engagement and communications app 5 The Derry Group launches new employee engagement and communications app 6
Technology48 mins ago

The Derry Group launches new employee engagement and communications app

The Derry Group, a one stop shop for the distribution, storage and order picking of chilled and frozen products has...

Barclaycard launches new service to redefine supply chain payments for businesses 7 Barclaycard launches new service to redefine supply chain payments for businesses 8
Finance1 hour ago

Barclaycard launches new service to redefine supply chain payments for businesses

Barclaycard Payment Intelligence uses data to help businesses of all sizes better understand and nurture their supply chains The brand-new...

The UnRefundables: Shoppers left out of pocket post-pandemic 9 The UnRefundables: Shoppers left out of pocket post-pandemic 10
Business10 hours ago

The UnRefundables: Shoppers left out of pocket post-pandemic

One in ten shoppers (11%) left out of pocket or without refunds since pandemic One in three shoppers (36%) actively...

How new trends are creating the perfect recipe for rapid digital transformation throughout the world's oldest institutions 11 How new trends are creating the perfect recipe for rapid digital transformation throughout the world's oldest institutions 12
Banking15 hours ago

How new trends are creating the perfect recipe for rapid digital transformation throughout the world’s oldest institutions

By Wayne Johnson, CEO, Encompass Digital banking has drastically changed the landscape of financial transactions over the last few years....

Standard Chartered Bank partners with Microsoft to become a cloud-first bank 13 Standard Chartered Bank partners with Microsoft to become a cloud-first bank 14
Banking21 hours ago

Standard Chartered Bank partners with Microsoft to become a cloud-first bank

Standard Chartered Bank and Microsoft Corp. on Tuesday announced a three-year strategic partnership to accelerate the bank’s digital transformation through a cloud-first strategy....

Younger generations drive UK alternative payment method adoption for online transactions 16 Younger generations drive UK alternative payment method adoption for online transactions 17
Finance22 hours ago

Younger generations drive UK alternative payment method adoption for online transactions

42% of Millennials and 35% of Generation Z feel confident using alternative payment methods, or have used them previously 81%...

New Moneypenny Survey Shows How Office Life has Transformed in Post-lockdown Return to Work  18 New Moneypenny Survey Shows How Office Life has Transformed in Post-lockdown Return to Work  19
Business22 hours ago

New Moneypenny Survey Shows How Office Life has Transformed in Post-lockdown Return to Work 

A new survey by leading outsourced communications provider, Moneypenny, into the return to work post-Covid lockdown, shows that almost half...

What does the future hold for accessing earnings? Introducing the world’s first Earnings on Demand payment and debit card 23 What does the future hold for accessing earnings? Introducing the world’s first Earnings on Demand payment and debit card 24
Banking2 days ago

What does the future hold for accessing earnings? Introducing the world’s first Earnings on Demand payment and debit card

By James Herbert, CEO & founder, Hastee Let’s begin by looking at how our brains are wired. Think about the hunter-gatherer mindset: when...

Board-Level Risk Oversight Deserves Renewed Attention Board-Level Risk Oversight Deserves Renewed Attention
Investing2 days ago

Risk Mitigation & The US Election

We need to talk about the election. For the past four months, news cycles have been dominated by the COVID-19...

Honest services wire fraud and the need for caution on multilateral development bank projects 25 Honest services wire fraud and the need for caution on multilateral development bank projects 26
Business2 days ago

Honest services wire fraud and the need for caution on multilateral development bank projects

By Joshua Ray, Legal Director, Rahman Ravelli www.rahmanravelli.co.uk A recent court case extended US prosecutors’ extraterritorial reach for tackling corruption....