The Financials Unshackled Weekender | Issue 60 (7th Sep 2025) - Bank Regulation In Focus and Much Much More
The INDEPENDENT voice on banking developments - No stockbroking, no politics, no nonsense!
The material below does NOT constitute investment research or advice - please scroll to the end of this publication for the full Disclaimer
Welcome to Issue 60 | ‘The Financials Unshackled Weekender (7th Sep 2025)’ - your weekly pack for critique and curation of key banking developments. I’m in London on Wed 10th September with some availability - please shoot me an email at john.cronin@seapointinsights.com if you would like to catch up.
It has been a busy week on the newsflow front but, in terms of groundbreaking developments, there are few. I kick off this week’s note with a critique piece on European (and Irish) banking competitiveness - rather than giving prominence to UK developments for a change.
To unshackle your understanding of the week's banking developments please read on to explore critiques, curated insights, your calendar for the week ahead, and to finish with some light entertainment!
🔎 The Critique 🔎
🇪🇺 Europe Unbound 🇪🇺 : Banking overregulation in focus
What Happened?: Two key developments: 1) The Association for Financial Markets in Europe (AFME) published a report (available here) on Tuesday 2nd September highlighting the barriers that constrain EU banking consolidation; and 2) Banking & Payments Federation Ireland (BPFI) published a position paper on the same date, calling for a regulatory reset at both an Irish and a wider EU level to protect competitiveness, investment and growth (press release here and report here).
Key Detail: Taking both reports in turn:
The AFME’s core findings are that >€225bn of capital and >€250bn of liquidity is trapped by regulatory ringfencing (i.e., stuck within subsidiaries of EU banking groups and unavailable to the parent firm) and that EU banks suffer higher funding costs versus global peers due to more stringent MREL requirements (average requirement 28% in Europe versus 22% in US and 27% in UK, according to the paper) - concluding that the banking sector is therefore competitively disadvantaged. The paper also discusses a whole host of other issues including inconsistent intragroup large exposure limits, opaque and unpredictable Single Resolution Fund (SRF) contributions, and supervisory complexity and national interference in banking consolidation. The AFME, unsurprisingly, argues that the European competitiveness gap creates an urgency to complete the Banking Union, building on the recommendations contained within the Mario Draghi report of 2024 - and observes that the EC’s upcoming 2026 competitiveness review “will be a critical moment to align regulatory ambitions with market realities”. As AFME CEO Adam Farkas notes, the report “provides a clear roadmap for reform that prioritises further building up trust between supervisors, allows the movement of capital and liquidity within the Union’s borders, and the removal of structural barriers to cross-border banking.”.
The BPFI report’s focus is on simplification of regulations and supervisory practices - with the goal of eliminating complexity, duplication and inefficiencies. Specifically, it raises issues with: i) Ireland’s regulatory approach, with numerous examples of where rules exceed the requirements of European directives or international standards - with such ‘gold-plating’ adversely affecting the country’s competitiveness; ii) a lack of proportionality where a ‘one-size-fits-all’ methodology is too often favoured over an approach that is commensurate with a firm’s size, complexity, and risk profile; and iii) the fragmented approach to regulatory guidance where it is difficult for even the largest firms to cope with the continuous onslaught of policy statements, speeches, and Dear CEO letters– all of which set out regulatory expectations. It argues that the Central Bank of Ireland (CBI) be tasked with a secondary competitiveness objective (similar to the move the UK made in 2023 when its Prudential Regulation Authority (PRA) was given a new secondary competitiveness and growth objective).
Unshackled Perspectives:
There is one common thread to the two reports. Competitiveness. Or lack thereof should I say. As I wrote in the Business Post here on 18th July last “the prevailing regulatory philosophy in Europe is that of safety first” and that this mindset of regulating for worst-case failure strangles growth. In broad terms, my view is that both Europe and Ireland’s politicians and regulators needs to get their act together - fast. As the Editorial Board at Bloomberg concluded in this well-written opinion piece on Tuesday 2nd September: “Europe’s leaders must recognize that a fragmented, fragile banking system — much like its divided capital markets, power grid and defense industry — is not a competitive advantage. On the contrary, it’ll undermine the progress on security, the environment and productivity that the EU urgently needs.”.
This is not to say that Europe ought to push ahead with a deregulatory agenda consistent with what we are seeing in some other regions (which, in my personal view, is going too far). Neither report is arguing that. But my view is that domestic policymakers in European countries need to work constructively at an EU-wide level (less photo ops, more focus on driving and invoking actual coordinated change) and show some mettle and maturity, challenging regulators decisions and holding them accountable. The core incentive of regulators is risk aversion. Without a clear mandate to foster competitiveness, their default action will always be to create more rules, prioritising stability at the expense of dynamism. This approach carries a significant opportunity cost. In banking, you can see this in lower European bank valuations, excessive regulatory compliance costs, stifled innovation, reduced competition and less consumer choice, and restricted access to credit. Politicians need to get with the programme - unchecked regulation can do more harm than good.
So, the Financials Unshackled message to politicians all around Europe is: Get real and step up and task regulators with a competitiveness mandate as a starter for six. Indeed, I wrote in the Business Post on Wednesday 3rd September here that it was encouraging to read the PRA CEO Sam Woods’ upbeat remarks in June here on the progress that the authority has made in adapting its regulatory framework to the evolving needs of the UK market since it was given a new secondary competitiveness and growth objective in 2023 – without compromising resilience or making the system more fragile.
In a domestic context, I set out my views on the BPFI report in this article that was published in the Business Post on Wednesday 3rd September, concluding that: “The BPFI’s contribution, in my view, brings both measure and maturity to this critical debate. It simply calls for a levelling of the playing field with other EU jurisdictions and for regulators to consider competitiveness and growth objectives in the context of the regulatory framework. That is categorically not a call for a return to the ‘green jersey agenda’ of yesteryear. The report must not be allowed to gather dust. The industry, the Central Bank, and the Department of Finance now need to step up and engage in a constructive and open dialogue to work together to achieve an optimal regulatory regime.”. The Business Post further reported on Saturday 6th September here that senior figures in Ireland’s financial services sector have told the newspaper that ‘gold-plating’ is damaging the attractiveness of the country as a place to do financial services business. Indeed, in a country where ‘establishment figures’ and ‘wannabe establishment types’ are typically reluctant to have the courage to speak out and call out the truth (looking after their own back pocket, playing politics and keeping everyone ‘important’ ‘on side’ is far ‘cuter’ than airing a view…), it was welcome to see Terri Dempsey, CEO and Country Head of State Street Ireland stick her head above the parapet, noting that it’s a “timely opportunity to streamline certain aspects” of the Irish regulatory regime “to ensure continued alignment with EU norms, and to reduce frictions”. It’s probably as far as a domestic regulated financial services firm chief can go - but it’s notably further than most do in a country where corporate and political ‘establishment figures’ often tend to put the navigation of corporate and political hierarchies ahead of robust economic debate and the public good in my experience.
📌 The Curation 📌
🇬🇧 UK Unfiltered - My Top Picks 🇬🇧
1️⃣ Bank taxes stay in the spotlight:
Sky News reported on Thursday 4th September here on a letter that the CEO of UK Finance reportedly sent to the Chancellor ahead of the Budget (and seen by Sky News), issuing a warning shot in the context of raised speculation that the banking sector could be a target for higher taxes. The article sets out some extracts from the letter, as follows: “Both the financial services sector and the wider investor community have... strongly welcomed your clear emphasis - most recently through the Leeds Reforms - on ensuring that the UK's financial services sector has the right environment to be internationally competitive…As you said in launching those reforms, it is vital to deliver certainty for banks operating here and ensure that UK banks can compete internationally and drive economic growth…As many of our members have recently noted, efforts to boost the UK economy and foster a strong financial services sector would not be consistent with further tax rises on the sector, which already makes a substantial contribution to the public finances…The emphasis should be on continuing to implement an agenda of regulatory reform that allows for an appropriate adjustment in risk appetite.”.
I wrote last week in Financials Unshackled Issue 59 here*, following the IPPR’s proposal for a ‘QE reserves income levy’, that there is, in my view, a danger that Treasury will indeed seek to impose further taxes on the sector. If Treasury does press forward in this respect, I see the most likely moves as: i) a one-off increase in the surcharge (with the £100m allowance likely to be unchanged); and ii) an outright (structural) increase in the surcharge, perhaps with a commitment to review it annually. I also noted that it is my view that it is highly unlikely that the excess reserves remuneration framework will be tampered with - but the IPPR proposals could be seen as ‘cover’ for an increase in bank taxes more broadly. I remain of this view. However, we now face an elongated period of uncertainty given that the Treasury confirmed this week that the Autumn Budget will not be delivered until Wednesday 26th November. While the topic will undoubtedly come up at next week’s Barclays Global Financial Services Conference, it no new information will be imparted - though I suspect some executives might express the view that a ‘QE reserves income levy’ specifically is unlikely to be a runner.
* I also want to issue a correction to the emailed version of Financials Unshackled Issue 59 (the online version here has been amended). I remarked that the IPPR’s projected fiscal revenues associated with its proposed ‘QE reserves income levy’ would be less if the banks elected to park their excess reserves elsewhere (e.g., in investment securities). I was looking through the narrow lens of what a subset of the banks might do when writing this comment. The comment was factually inaccurate as it is effectively a ‘zero sum game’ as system-wide reserve balances would be unchanged but the conclusions of the piece remain unaffected. To be clear, no one at the IPPR or the BoE has been in touch on this and no one has asked me to issue a correction but it is important to note the flaw for my readers’ benefit and in the interests of full transparency.
2️⃣ BoE data points to positive lending and deposit market conditions:
The Bank of England (BoE) published Money and Credit Statistics for July 2025 here on Monday 1st September.
Key points to flag:
Net mortgage approvals well ahead of consensus expectations: Net mortgage approvals for house purchases were +800 m/m to 65,400 in July (note that remortgaging approvals were -2,700 m/m to 38,900), which was well ahead (+1,000) of the 64,400 that had been forecast by economists in a Reuters poll.
Net borrowing in positive territory across all lending categories in the month: Net borrowing across mortgages (annual growth rate in net mortgage lending +2.9%), unsecured credit (annual growth rate in unsecured credit +7.0%), and business lending (annual growth rate in large business lending +8.0% and +0.9% for SMEs - the highest growth rate reported since August 2021 in the case of SMEs) all in positive territory in July.
Rates data: i) Mortgages (stock 3.88%, flat m/m; July flow 4.28%, -6bps m/m); ii) Interest-charging credit cards (21.64%, +15bps m/m), interest-charging overdrafts (21.47%, -76bps m/m), new personal loans to individuals (8.28%, -14bps m/m); iii) Business loans (July flow 5.80%, -14bps m/m) - and within this were SME loans (July flow 6.41%, -10bps m/m).
Deposits: Household deposits +£7.3bn in the month (following an increase of £8.0bn in June) with rates broken down as follows: i) new time deposits 3.84%, -18bps m/m; ii) stock of time deposits -4bps m/m to 3.53%; and iii) stock of sight deposits 1.89%, -2bps m/m. Business deposits -£0.4bn in July with rates broken down as follows: i) new time deposits 3.70%, -4bps m/m; and ii) stock of sight deposits 2.25%, flat m/m.
All in all the data is broadly consistent with the findings of the recent BoE Credit Conditions Survey and Bank Liabilities Survey, which indicated: i) some marginal front book net interest margin (NIM) accretion; ii) further growth in retail deposit volumes; and iii) moderate growth in new lending in the three months to end-August (covered in Financials Unshackled Issue 52 here). The rise in mortgage approvals still point to an improving housing market (as an aside, both the Nationwide HPI and the Halifax HPI for August 2025 reported a softening in annual house price growth in the month (to +2.1% y/y according to Nationwide here and to +2.2% y/y according to Halifax here)).
It will be very interesting to listen to what the bank executives have to say on lending volume, deposit volume, and rate trends and expectations for the months ahead at the Barclays Global Financial Services Conference in NYC next week. Front book mortgage spreads are likely to be in focus particularly (as always) - and, based on latest Rightmove data as at 6th September here, current average 2Y (the most popular product) fixed rate spreads are running at 57bps (+5bps w/w) and current average 5Y fixed rate spreads are running at 53bps (+8bps w/w). While these spreads are lower than what the large banks indicate in relation to their own originations experience, my sense is that mortgage spreads are likely to climb a bit over the coming months with the banks operating with some caution ahead of the November Budget - and it is somewhat instructive that we have seen a number of larger lenders nudge up mortgage rates in the last few days (as this FT article from Saturday 6th September discusses), which the Rightmove data seems to capture.
On a separate note, thinking ahead to those bank sessions at the Barclays conference next week, it will also be interesting to hear what executives have to say in relation to the sensitivity of financial performance and capital (NII, losses on bond holdings, etc.) to the extent the yield curve were to steepen materially further in the relative near-term.
3️⃣ Lloyds impending staff culling gets lots of attention:
The FT reported on Thursday 4th September here that Lloyds Banking Group (LLOY) is planning to overhaul how it manages the performance of its 63,000 employees, with the bottom 5% set to be put at risk of dismissal. The lender reportedly notes that this is part of a transformation drive in which it is “striving to embed a high-performance culture”.
This is a slightly unorthodox move for a mainstream retail / commercial bank and has received widespread coverage in the media for this reason. These so-called ‘up or out’ / ‘rank and yank’ policies are more commonly associated with high-performing US firms like Goldman Sachs and McKinsey. For what it’s worth my own personal view is that a meritocratic approach like this, is, in principle, conducive to higher performance and ‘keeps people on their feet’ as it were - a positive change in the retail banking world, where playing politics all too often trumps performance in the context of individual career progression though an element of that will always exist. Indeed, I have often been reminded throughout my career of that infamous Steve Jobs’ quote: “In weak companies, politics win. In strong companies, best ideas do”. LLOY’s CEO Charlie Nunn is himself from a high-performance cultural background (ex-McKinsey, for example). That being said, this is a move, like any attempt at cultural change, that will have to be executed very carefully to ensure as-fair-as-possible performance measurement and so as not to overly upset the rank and file and sow the seeds for the development of a toxic uncooperative culture. Textbook leadership perhaps, but the Financials Unshackled bottom line view is that, on balance, companies are not charities and putting people under pressure to perform is no bad thing.
In separate LLOY-related news, Sky News reported this morning here that the bank is set to announce an acquisition of Curve for c.£120m potentially as soon as next week. This follows a Sky News report on 12th July here which reported that a deal was expected to be struck in September (covered in Financials Unshackled Issue 53 here). Today’s Sky News article is worth a flick if only to reminds readers of how unrealistic fintech founders’ valuation ambitions / expectations can be at times. Curve’s founder reportedly noted in an interview in 2019 that the business will be IPO’d in 10 years time and hopefully worth around $50-60bn.
4️⃣ Revolut reportedly to allow employees sell stock at a $75bn valuation:
The FT reported on Monday 1st September here that Revolut employees were informed on Monday that they will be allowed to sell up to 20% of their stock at a valuation of $75bn to meet “…further investor demand from both new and existing world class investors”. This valuation is considerably higher than the ‘blended’ $65bn valuation that Revolut was discussing back in July (which was said to comprise a higher figure for raising new money and a lower figure for existing investors selling shares), according to this FT article from 9th July (covered in Financials Unshackled Issue 53 here) - which means that the ‘blended’ valuation is likely to therefore be >$75bn.
This is a strong indication of the level of excitement there is in relation to the Revolut investment case. Revolut is a multi-faceted business. I wrote in the Business Post on 16th June here on Revolut’s banking business specifically: “Revolut recorded its fourth consecutive year of profitability in 2024. It continued to grow rapidly, reaching 52.5 million retail customers by year-end — a 38 per cent increase on 2023. Deposits also rose sharply, up 48 per cent year-on-year to £22.5 billion. The figures imply average balances of just over £400 per account, including business customers– only about two per cent of average balances at Lloyds and NatWest, for example. In Ireland, Revolut is reported to have gathered close to €1 billion in deposits across more than three million accounts, pointing to even lower average balances per customer than in the UK. For context, AIB reported deposits of nearly €110 billion at the end of March. While Revolut has successfully developed a well-diversified business that generates substantial non-interest revenues, its lending operations remain limited. By the end of 2024, less than £1 billion of customer deposits had been recycled into loans. The bulk of its £790 million in gross interest income was derived from returns on liquid assets—such as central bank reserves, bank deposits, and treasury investments—rather than traditional lending. In essence, Revolut is largely placing deposits with other financial institutions and investing them in liquid securities. Although the company is still in the early stages of developing its lending capabilities, the low average account balances suggest it faces ongoing challenges in convincing customers to treat it as their primary banking provider. Trust likely remains a key barrier in that transition.”. I remain of the view that trust is a significant barrier but many moves to ‘tidy itself up’ have been taken by the firm and one would be wise not to discount Revolut’s potential disruptive capabilities in a long-term (as distinct from a short to medium-term) context. That is categorically not a view on a $75bn (or higher) reported valuation.
In other Revolut-related news this week, the following are worth noting:
The FT reported on Friday 5th September here that Balderton Capital has cut its shareholding in Revolut through multiple stake sales (reportedly banking c.$1bn) that valued Revolut at $45bn.
It was widely covered in the media that Revolut has appointed former SG CEO Frederic Oudea as Chairman for its new Western European operations. A Bloomberg piece here is worth a read on this development.
CityAM reported here that Revolut has announced an expanded partnership with Google Cloud to help scale its services to over 100 million customers while enhancing product innovation through AI and machine learning.
5️⃣Other Sector Snippets:
A few other stories caught my attention this week, as follows:
The Times reported here on Monday 1st September that a claimant lawyer, Kevin Durkin, is of the view that the recent Supreme Court decision in the context of the motor finance debacle is not the win for the lending industry that many think. Durkin reportedly commented on the Sentinel Legal podcast that “We’ve won, we’ve smashed the doors open in terms of having that Supreme Court decision. Now the hard work begins: we need to get on with getting people back the compensation that they deserve and I can’t wait to get going.”.
UK Finance published its latest Household Finance Review for Q2 2025 on Wednesday 3rd September here. While the information is a little dated relative to the above BoE July data, it is a great read if you want a good review of what is going on across all dimensions of the UK mortgage market. Key points were: i) mortgage lending dipped q/q (as expected) but recovered in June; ii) savings continued to grow; and iii) mortgage arrears fell once again q/q.
Interesting piece in the FT here on Tuesday 2nd September on how UK fintechs (e.g., Revolut, Starling Bank) are considering potential US acquisitions to accelerate their move into the US market. Indeed, OakNorth agreed to acquire the Michigan-based Community Unity Bank in March, a FDIC-insured bank (covered in Financials Unshackled Issue 40 here). While the transaction is subject to regulatory approval it is likely to support the development of OakNorth's US ambitions far more quickly than applying for a national banking charter would.
Sarah Breeden, Deputy Governor for Financial Stability at the BoE, spoke on Wednesday 3rd September on her vision for a ‘multi-money’ system where different forms of money including traditional and tokenised commercial bank deposits, stablecoins and central bank money are freely exchangeable. Transcript here.
Reform UK’s leader Nigel Farage has reportedly remarked that the party would strip the Financial Conduct Authority (FCA) of its role in regulating banks, handing control to the BoE. This is somewhat concerning in a financial stability and a consumer protection context. Read further in The Guardian here.
6️⃣Other Company Snippets:
A few other stories caught my attention this week, as follows:
Funding Circle Holdings (FCH) reported a strong uplift in reported PBT (pre-exceptionals) in its first half results to 30th June here on Thursday 4th September - coming in at £6.0m for the period versus £0.5m in the equivalent prior year period. The company notes that it remains on track to achieve its medium-term guidance of at least £200m in revenues and at least £30m in PBT in FY26.
Shawbrook announced the acquisition of the specialist lender ThinCats on Tuesday 2nd September here, noting that it “…represents a strategic investment in accelerating the growth of Shawbrook's existing presence in the specialist SME lending market, underlining the Group's commitment to supporting UK SMEs with highly tailored finance facilities and relationship-led service”.
Together Financial Services announced here on Thursday 4th September the appointment of Andy Higginson, former Group Finance Director of Tesco, as NED with effect from 15th September.
The Times reported here on Monday 1st September that the payments company Wise is considering applying for a UK banking licence. I was pleased to provide my first reaction thoughts in the article: “John Cronin, a banking analyst at SeaPoint Insights, said it was “entirely plausible” that Wise would seek to become a fully fledged bank. He said: “They could potentially look to convert the funds they safeguard into deposits, which they could then recycle into lending opportunities. “A banking licence would give them direct access to the UK’s payment infrastructure enabling them to reduce their reliance on third-party banks for clearing and settlement, potentially reducing costs and operational complexity.””.
Zopa Group published a 1H25 trading update on Tuesday 2nd September here. The banking group has seen improved financial performance, with reported PBT for the period coming in at £18.2m versus £5.1m in the equivalent prior year period - owing to higher NII, improved CIR, and a reduction in CoR.
7️⃣Shareholding Changes of Note:
NatWest Group (NWG): NWG has put in place a trading plan for a few of its key executives to sell up to 25% of their vested shares. See here for details.
Paragon Banking Group (PAG): JPM AM now 5.54% (previously disclosed shareholding: 5.47%) following a transaction on 1st September (based on a 2nd September RNS that followed a separate RNS on 1st September that noted that JPM AM’s shareholding fell from 5.64% to 5.47% following a transaction on 28th August).
🇮🇪 Ireland Unvarnished - My Top Picks 🇮🇪
1️⃣ Snippets from a quiet week:
Outside of the BPFI report discussed above, here is what caught my attention this week:
AIB Group (AIBG) developments: 1) AIBG announced on Monday 1st September here that Anne Sheehan, the General Manager of Enterprise Commercial for Europe North at Microsoft (and former CEO of Microsoft Ireland from 2021-23) has been appointed a NED with immediate effect. Based on Sheehan’s experience “at the cutting edge of the technology sector” (to paraphrase the Chairman’s words), this sounds like a great hire in the context of the strategic evolution of the business. 2) AIBG announced on Friday 5th September here that it has completed the disposal of its minority shareholding in AIB Merchant Services (AIBMS) and that, in line with former guidance, the transaction is expected to drive c.35bps of CET1 capital ratio accretion. Notably, AIBG recognised income of €34m relating to AIBMS in its income from equity accounted investments line in FY24. 3) AIBG’s CEO Colin Hunt was appointed Chairman of the Irish Business and Employers’ Confederation (IBEC) this week for a 12-month term. IBEC is Ireland’s largest lobby and business representative group. Refreshingly, Hunt used his opening address to relay his concerns around Ireland’s infrastructural deficit with a clear call to action for policymakers to do something about it. It’s also unlikely to be unhelpful for the banking sector to have a bank CEO sit at the top of this powerful lobby group though Hunt will know better than to overly represent the sector’s views / asks. But the subliminal message is that he will be vocal which might just weigh a little bit on policymakers to the extent that any change in bank taxes is under consideration in Budget 2026 on 7th October, for example (on the latter, and as an aside, my view is that there won’t be any changes in bank taxes and I will write more about why I think that in due course).
Bank of Ireland Group (BIRG) developments: 1) The Business Post reported on Thursday 4th September here that Bank of Ireland Group (BIRG) has agreed to attend conciliation talks with the Financial Services Union (FSU) in relation to changes in remote working practices. This appears to be yet another climbdown in a stand-off from BIRG’s perspective - with memories of its dispute with Ailmount, a company controlled by c.700 former Davy shareholders, still fresh in people’s minds (you can read a view in The Irish Times of 19th December 2024 here in relation to that quarrel). 2) BIRG issued a press release on Thursday 4th September here announcing that it has rehired June Butler, the CEO of the Strategic Banking Corporation of Ireland (SBCI), as Head of Corporate and SME Banking. Butler, who formerly served as Head of SME Banking and Sectors at BIRG, is a great hire for the bank in my view given her abilities, experiences and deep connections with Irish businesses.
2️⃣ Shareholding Changes of Note:
AIB Group (AIBG): Wellington now 4.05% (previously disclosed shareholding: 4.02%) following a transaction on 28th August.
Bank of Ireland Group (BIRG): Wellington now 3.00% (previously disclosed shareholding: N/A) following a transaction on 3rd September.
🇪🇺 Europe Unbound - My Top Picks 🇪🇺
1️⃣ Isabel Schnabel interview with Reuters:
Isabel Schnabel, Member of the ECB’s Executive Board, conducted an interview with Reuters on 28th August which was published on Tuesday 2nd September (transcript here). The interview was mostly focused on macro developments, which are beyond the scope of this particular newsletter, but she did make some notable points in a banking sector context, as follows:
Schnabel remarks that banks’ recourse to the ECB’s standard refinancing operations (under the new operational framework that was decided on in March 2024) has remained limited due to ample excess liquidity and the consequent capability for banks to fund themselves more cheaply in the market. For some context on this point, please refer to Patrick Montagner’s (Member of the ECB Supervisory Board) speech on 1st July here in which he remarked that “…as excess liquidity is expected to sink to levels that will no longer be sufficient to meet the demands of the banking system, banks and investors should view standard ECB operations and facilities – such as the main refinancing operations – as tools to be used proactively in day-to-day liquidity management to maintain an appropriate balance between central bank deposits and collateral in liquidity buffers. In other words, supervisors will not view banks accessing ECB facilities as an indication of a lack of market access or a sign of stress.”.
Indeed, Schnabel reaffirms Montagner’s comments, noting that “Banks should consider the standard refinancing operations to be an integral part of their day-to-day liquidity management and an important component of a diversified funding mix”. However, she goes on to observe that, given excess liquidity has remained abundant, the ECB has time to consider whether it needs to adjust any of the parameters of the operational framework and to consider the design of the structural operations. She said that work is set to start in 2026 on this but wouldn’t be drawn on precise timing in the context of the official review itself.
In providing a clear and reliable backstop for liquidity, the ECB’s operational framework aims to prevent a funding crunch and ensure that money market rates remain well-anchored to its policy rates - so, even though usage of the ECB’s standard refinancing operations, it remains a welcome addition.
2️⃣ Other Snippets:
A few other items caught my attention this week:
Bloomberg published a useful ‘Explainer’ piece here on Wednesday 3rd September on why seasoned investors are raising the alarm in relation to the insatiable demand for AT1 paper. I wrote on his topic in some more depth in Financials Unshackled Issue 58 here.
Bloomberg reported on Wednesday 3rd September here that the ECB held a workshop on Tuesday 2nd September with banks as well as EIOPA officials to discuss how banks are insuring their loan books against risks including credit default, seeking to unearth where these risks end up in the system. Indeed, Andreas Dombret (Global Senior Advisor at Oliver Wyman and Founding Member of the ECB Supervisory Board) penned a post on LinkedIn yesterday here on related topics, in which he notes: “I see potential stabilizing effects of the private credit markets if risks are genuinely transferred through instruments like synthetic risk transfers (SRTs), and if the system remains insulated from hidden exposures. I recall how, during times preceding the GFC, securitization risks were often thought to have left the banks‘ balance sheets, but in reality, they mostly hadn’t.”.
In a related vein, Christine Lagarde, President of the ECB, spoke on Wednesday 3rd September at the 9th annual conference of the European Systemic Risk Board (ESRB) (transcript here) on how the financial system’s architecture is changing but that its functions and risks have not. She picks up on risks presented by non-banks, noting that: “In the past, when Europe’s financial system was dominated by banks, detecting risks often meant closely reading banks’ balance sheets. That world has changed. Europe’s non-bank financial sector has expanded rapidly. In relative terms it is now larger than that of the United States, amounting to 3.8 times GDP compared to 3.1 times in the U.S. At the same time, banks’ activities are intertwined with those entities and increasingly with new entrants such as fintech platforms. The line between “banks” and “non-bank financial institutions ” has blurred to the point where the old conceptual distinction is no longer a useful guide.”.
Claudia Buch, Chair of the ECB Supervisory Board, penned a blog on Friday 5th September here noting that, while the results of this year’s stress test of euro area banks show that the banking sector would remain resilient when faced with a hypothetical adverse macroeconomic scenario, banks and supervisors must also use additional tools to scan the horizon and respond to emerging risks. Buch talks about management of geopolitical risks amongst bank boards and different supervisory tools including macroprudential policies and early activation of the CCyB to address bank-specific vulnerabilities that stress tests cannot capture.
Both the FT here and Bloomberg here reported on Thursday 4th September that JPM plans to start offering retail banking services in Germany from 2Q26.
🌎 Global Unpacked - My Top Pick 🌎
1️⃣ Views on neobanks:
I penned an article that was published in the Business Post here on Monday 1st September focusing on how digital challenger banks are increasingly drawing the ire of watchdogs, observing that “The era of traditional banks as the default villains of financial regulation is slipping into history” - going on to note: “Digital banks have often bolted on compliance functions as an afterthought. Their technology was designed for seamless onboarding and a frictionless customer experience, not for the complex and often tedious work of monitoring suspicious transactions and updating customer records. The result is a widening cultural divide. While legacy banks may lack the slick branding and smooth customer interface, they are demonstrably better at the regulatory plumbing that watchdogs care most about.”. However, I wrapped up noting: “For all their growing pains, the cumulative effect of these firms over the next decade will be profound, and their ultimate impact should not be underestimated.”.
📆 The Calendar 📆
Look out for these in the week ahead:
🇬🇧 Mon 8th Sep (14:00 BST): Lloyds Banking Group (LLOY) CFO Fireside Chat at Barclays Global Financial Services Conference (registration link available in Investor Relations section of LLOY’s website)
🇬🇧 Mon 8th Sep (17:45 BST): Barclays (BARC) CEO & Group Finance Director Fireside Chat at Barclays Global Financial Services Conference (registration link available in Investor Relations section of BARC’s website)
🇬🇧 Tue 9th Sep (09:30 BST): Bank of England (BoE) Mortgage Lenders and Administrators (MLAR) Statistics - Q2 2025
🇬🇧 Tue 9th Sep (14:00 BST): NatWest Group (NWG) CFO Fireside Chat at Barclays Global Financial Services Conference (registration link available in Investor Relations section of NWG’s website)
🇬🇧 Tue 9th Sep (14:45 BST): HSBC (HSBA) CFO Fireside Chat at Barclays Global Financial Services Conference (registration link available in Investor Relations section of HSBA’s website)
🇮🇪 Wed 10th Sep (11:00 BST): Central Bank of Ireland (CBI) Retail Interest Rates - Jul 2025
🇪🇺 Thu 11th Sep (12:45 BST): European Central Bank (ECB) Governing Council Monetary Policy Decision (press conference to follow at 13:30 BST)
🍺 The Closer 🍺
I always enjoy reading the comments section on the articles that feature on the FT website. Most commentators choose to remain anonymous for obvious reasons. Anyhow, on the above Lloyds Banking Group (LLOY) story on how it is planning to ‘yank’ certain employees based on performance criteria, there were a few cracking remarks. One notable one being that Nunn wants to bring in the high performance culture but not the high performance salaries that go with it. Will the survivors (97.5%, if my reading is correct) feel emboldened to demand higher pay, I wonder? Pay for performance and all that. Or, perhaps the leak is just a ruse to get it out into the ether - testing the waters as it were - with a view to potentially starting on this programme at a much later stage? Don’t be shy to send me your views!
Have a great week! 🍨
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