Bank Industry Insights: December 2023 edition

The big news in November was the Chancellor's autumn statement, with the Office for Budget Responsibility (OBR)'s gloomy forecasts for the UK's economy predicting slower economic growth, higher unemployment rates and a continually persistent rate of inflation compared to its own predictions back in March. Even with the National Insurance rate dropping from 12 to 10 per cent, the OBR warned that the real disposable income for households is likely to drop by 0.9 per cent in 2024, especially in light of more fixed-rate mortgages facing renewals at higher interest rates (although, this drop is lower than predicted back in March, so perhaps that is the silver lining?). On the other hand, conversations we're having point to a lot more confidence in resilience and the outlook for businesses, and with inflation slowly dropping, hopes are steady for interest rates to start to follow suit in 2024.

The Bank of England, alongside the FCA, have recently published proposals which look to regulate a stablecoin pegged against the value of sterling. The FCA’s Sheldon Mills said stablecoins could make payments “faster and cheaper”, while the Bank of England’s Sarah Breeden said stablecoins could “enhance digital retail payments”. Whilst this is an exciting step forward, my esteemed colleague Nisha Sanghani (Ashurst Risk Advisory) provides some useful insight, noting that the importance of safety in regulating cryptoassets “should not be underestimated given the ecosystem will include entities providing services to these payment systems, such as stablecoin issuers and wallet providers”. You can read more on the proposals here . At the same the House of Commons Treasury committee has urged the Bank of England and HM Treasury to 'proceed with caution' because of 'significant risks and challenges' with concerns over financial stability and privacy .

In other cryptocurrency news, the recent settlement between the US department of Justice and Binance (a whopping $4.3bn) acts as a reminder that legally compliant rivals in this space are likely to become more competitive. Andrew Bond, senior research analyst at Rosenblatt Securities points out that "institutions are going to trade at highly regulated entities that they know", suggesting that those who trade in crypto recognise that "all your activity’s being monitored" and will look to build relationships with trading platforms with clean records, further impacting Binance's prospects. Missing from the settlements is the outstanding case from the Securities and Exchange Commission (SEC) which, if the SEC wins, Binance will have to concede that cryptocurrencies traded on its platform are securities, sharply increasing regulatory costs and potentially redefining the concept of what securities trading encompasses.

Interesting observation in the FT earlier this week that 73 per cent of Europe's banks are trading below book value , citing the region's weak economic growth, supertaxes on banks and limited regional footprint of banks within the region, as well as weaker infrastructure investment capability than their American counterparts. But there still appears optimism around the strength of European banks and little evidence of a break-up trend on its way.