Citibank opens high-tech flagship NY branch

Citibank has officially opened a flagship, high-tech branch in New York's Union Square based on its "smart banking" outlets in Asia.

Chief executive Vikram Pandit cut the ribbon on the 9,700 square foot branch which has been operating since earlier this month, with a "houswarming tweet-up" last week tempting visitors with free wine and cheese.

The new branch includes six interactive sales walls which let customers browse information on products and services. Meanwhile other "media walls" show people inside and out live market updates, global and domestic news and local weather.

There are also state-of-the-art ATMs that eliminate the need for envelopes when making cash or cheque deposits while the cash machine lobby provide 24/7 access to customer service experts via video-assist.

Other features include free online access and Wi-Fi, access to global experts via two-way video conferencing and a private seating lounge for Citigold customers.

Over the past few months Citi has been actively rolling out the new generation of 'smart banking' stores across Asia Pacific and has now set its sights on key European markets such as France, Germany and the UK.

European Commission sets SEPA migration deadlines

The European Commission has finally set out its proposals for EU-wide end-dates for the migration of national credit transfers and direct debits to Single Euro Payments Area (SEPA) instruments.

The move means that, once the regulation comes into force, national credit transfers will be replaced by the pan European SEPA SCT within 12 months, with direct debits following after another year.

The proposal now goes to the European Parliament and the member states for consideration.

The EC says it has moved to enforce the move because self-regulation has failed. According to available European Central Bank data, as of October, only 9.6% of all credit transfers in the euro area were executed using a pan-European payment instrument. If this trend continues, it will take 25 years for the full benefits of the SEPA to be felt.

To ensure interoperability, the use of certain common standards and technical requirements such as the use of international bank account numbers (IBAN), bank identifier codes (BIC) and a financial services messaging standard (ISO 20022 XML) will be mandatory for all bank account payments in euro in the EU.

Internal market and services commissioner Michel Barnier says: "We have a Single Market, many countries share a single currency and soon we will move to a single pan-European payment system in Europe. It means that making payments cross-border will become as easy as making them at home. Consumers will only need one bank account and their payments will be faster, cheaper and safer. Businesses will benefit from one set of standards and much simpler processes. The proposal adopted today fixes end-dates to make this pan-European system a reality, hopefully as early as 2012."

The European Central Bank's Gertrude Tumpel-Gugerell - who has long called for a deadline - told the Financial Times that she "very much welcomed" the EC proposal.

Last month the European Payments Council warned that the EC will "effectively derail the entire SEPA project" if regulatory intervention on migration end dates does not include deadlines for phasing out national schemes.

Bank of England publishes its bi-annual Financial Stability Report

The Bank of England today published its bi-annual Financial Stability Report. The Report is part of the delivery of the Bank's strategy for its financial stability work, as set out in the Bank's Annual Report 2010. The Report concentrates on the Bank's assessment of conjunctural risks to financial stability.

The Financial Stability Report aims to identify key risks to UK financial stability and to stimulate debate on policies needed to manage and prepare for these risks. The Report is produced half-yearly by Bank staff under the guidance of the Bank's Financial Stability Executive Board, whose best collective judgement it represents, and following review by the Financial Stability Committee of the Court of Directors of the Bank of England.

In terms of the Banking Act, 2009 the Bank's financial stability objective is 'to contribute to protecting and enhancing the stability of the financial systems of the United Kingdom'. The Report is one vehicle to help it meet that objective.

In relation to current conditions, the Report notes that since June sovereign and banking system concerns have re-emerged in parts of Europe. The IMF and European authorities proposed a substantial package of support for Ireland. But market concerns spilled over to several other European countries. At the time of writing, contagion to the largest European banking systems has been limited. In this environment, it is important that resilience among UK banks has improved over the past year, including progress on refinancing debt and on raising capital buffers. But the United Kingdom is only partially insulated given the interconnectedness of European financial systems and the importance of their stability to global capital markets.

The Report also says that more medium-term risks are posed by a redistribution of capital within the financial system. Capital has flowed into safe assets and, despite recent increases, bond yields remain low in many advanced economies. There are some signs of this intensifying a search for yield, including into emerging market assets. Low yields may also be masking latent distress among some overextended borrowers, including some households, corporates and sovereigns. Against that backdrop, it is in banks’ collective interest to build resilience gradually through retention of earnings, which would be boosted if banks restrain distribution of profits to equity holders and staff.

On the policy front, the Report notes that the FSB/G20 reform programme includes improvements in the loss-absorbency of systemically important financial institutions and in the regimes through which they could be resolved; strengthening of central counterparties’ (CCP) risk management; and improvements in the capital regime for banks’ trading books. Reform in those areas will engender incentives for activity to migrate to unregulated parts of the financial system, so it is important that policymakers exercise vigilance about the regulatory perimeter.

Basel III rules text issued by the Basel Committee

The Basel Committee has issued the Basel III rules text, which presents the details of global regulatory standards on bank capital adequacy and liquidity agreed by the Governors and Heads of Supervision, and endorsed by the G20 Leaders at their November Seoul summit.

Mr Nout Wellink, Chairman of the Basel Committee on Banking Supervision and President of the Netherlands Bank, described the Basel III Framework as "a landmark achievement that will help protect financial stability and promote sustainable economic growth. The higher levels of capital, combined with a global liquidity framework, will significantly reduce the probability and severity of banking crises in the future." He added that "with these reforms, the Basel Committee has delivered on the banking reform agenda for internationally active banks set out by the G20 Leaders at their Pittsburgh summit in September 2009".

The rules text presents the details of the Basel III Framework, which covers both microprudential and macroprudential elements. The Framework sets out higher and better-quality capital, better risk coverage, the introduction of a leverage ratio as a backstop to the risk-based requirement, measures to promote the buildup of capital that can be drawn down in periods of stress, and the introduction of two global liquidity standards.

The Committee has put in place processes to ensure the rigorous and consistent global implementation of the Basel III Framework. The standards will be phased in gradually so that the banking sector can move to the higher capital and liquidity standards while supporting lending to the economy.

With respect to the leverage ratio, the Committee will use the transition period to assess whether it’s proposed design and calibration is appropriate over a full credit cycle and for different types of business models. Based on the results of a parallel run period, any adjustments would be carried out in the first half of 2017 with a view to migrating to a Pillar 1 treatment on 1 January 2018 based on appropriate review and calibration.

Both the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) will be subject to an observation period and will include a review clause to address any unintended consequences.

New report on US P-to-P payments

A New report by the Mercator Advisory Group has been published that focuses on the emerging US market for P-to-P payments delivered through financial institutions

Financial institutions offering P-to-P services have discovered that consumers will find innovative uses for new products that the designers often never envisioned. While many financial institutions began offering person-to-person (P-to-P) products with the expectation that they would be used to make small dollar payments between individuals, consumers have latched onto these products as a way to make a wide range of electronic payments and eliminate cheques.

Banks and credit unions thought that P-to-P products would be used for payments around $20, but many have discovered that the average size of the payments are ten times that amount. This means that the P-to-P market is much more than consumers splitting a restaurant tab. This market includes other payments such as those between an individual and a small business that does not have an electronic invoicing or payments system. Even so, paying the babysitter or the dog walker is not the same payment function as taking care of a utility or credit card bill, nor is it purely personal.

The Mercator Advisory Group's “P-to-P Payments at Financial Institutions: Not Micro, Not Mobile, Not Personal” report shows how banks and credit unions may benefit from the application of these products both by leveraging them as a way to encourage electronic means for payments that were once the domain of cash and cheques and by charging a reasonable fee for a service that provides value to their customers.

"It may be more accurate to refer to these kinds of payments as 'peer-to-peer' payments, as some industry analysts already do. This is because both the sender and the recipient are peers in that their use of electronic billing and payment systems happens through a common set of financial transaction tools," Ben Jackson, senior analyst in Mercator's Prepaid Advisory Service comments.

This detailed report focuses on the emerging US market for P-to-P payments delivered through financial institutions. It explores current offerings from major banks and credit unions, outlines who some of the major vendors are, examines the types of payments being made using these services, and reviews the market opportunity. This report begins to define how the P-to-P market is starting to segment itself as solutions, delivery channels, and users enter their second stage growth phase.

Highlights of the report are:

• Financial Institutions are rapidly enabling 'P-to-P' payments functions as part of their online bill payment systems, but real-time transfer capabilities are now entering the market.
• The average transaction size made with 'P-to-P' services is larger than expected, showing a market for person-to-business transactions out of P-to-P products.
• Financial Institutions seem unclear on whether P-to-P payments are a revenue generator or a customer retention tool. The question remains unanswered, and it might be up to vendors to help institutions get comfortable with certain fee strategies.
• Consumers seem ready to adopt the service, and vendors' surveys show that customers feel secure about conducting these transactions through their financial institutions.

Mercator's analysis suggests that this service could provide a significant new revenue source even with only small charges per transaction.

EU remittances down 7% in 2009 - official statistics

Worker remittances in the European Union declined by seven per cent in 2009 as the economic recession broke the trend for steady annual increases of the figure, the bloc's statistics bureau Eurostat said on December 13.

Total outflows in the 27 EU member states were 30.3 billion euro, a number that included remittance flows both inside the bloc and to third countries.

Remittances to countries outside the EU remained unchanged compared to 2008 as a share of the total at 73 per cent, Eurostat said in a statement. In absolute terms, remittances to third countries stood at 22 billion euro in 2009.

Spain remained the single largest source of worker remittances – money sent by migrants to their country of origin – in the EU at 7.15 billion euro, down from 7.9 billion in 2008. Italy was second, narrowing the gap and reporting an increase in remittances to 6.75 billion euro, compared to 6.38 billion a year earlier.

France saw remittances shrink from 3.4 billion euro to 2.85 billion euro, while Germany (3.1 billion euro to three billion euro) and the Netherlands (1.56 billion euro to 1.5 billion euro), posted much smaller declines.

Outflows from Bulgaria fell from 23 million euro in 2008 (including nine million outside the bloc) to 10 million euro in 2009 (including four million outside the bloc).

Five countries – Denmark, Ireland, Luxembourg, Malta and Sweden – kept their remittances data confidential, but it was included Eurostat's final figure, the statistics bureau said. Data for the UK was not available and had to be estimated.

Former Goldman Sachs programmer convicted over HFT code theft

Former Goldman Sachs computer programmer Sergey Aleynikov faces up to 15 years in prison after a New York jury found him guilty of stealing propriety code connected to the investment bank's high-frequency trading platform.

The jury in US District Court in Manhattan convicted Aleynikov on one count of theft of trade secrets and one of transportation of stolen property.

The Russian-born programmer worked for Goldman from May 2007 to June 2009, where he developed computer programs supporting the firm's high-frequency trading on various commodities and equities markets.

The bank acquired the HFT system - which generates millions of dollars a year in profits - for around $500 million in 1999 from Hull Trading Company.

Aleynikov quit Goldman to help develop a HFT platform for Teza Technologies, a Chicago-based start-up formed by ex-Citadel executive Mikhail Malyshev.

Prosecutors alleged that on his last day working for the bank, Aleynikov transferred "substantial portions" of Goldman Sachs's proprietary computer code for its trading platform to an outside computer server in Germany.

He encrypted the files and transferred them over the Internet and then deleted "the program he used to encrypt the files and deleted his computer's "bash history," which records the most recent commands executed on his computer".

In addition, he had already transferred "thousands of computer code files" related to the firm's proprietary trading program to his home computers during his two years working there.

He did this by e-mailing the code files from his Goldman Sachs account to his personal one and storing versions of the code files on his home computers, laptop, a flash drive and other storage devices, say prosecutors.

On 2 July Aleynikov flew to Chicago to meet Teza, taking a laptop and storage device holding Goldman proprietary code. He was arrested the following day at Newark airport.

Manhattan US Attorney Preet Bharara, says: "As today's guilty verdict demonstrates, we will use the full force of the federal law to prosecute those who steal valuable and proprietary information from their employers, whether those firms are on Wall Street or Main Street. The brazen theft of intellectual property by Sergey Aleynikov had the potential to cause serious harm to the company, and now he will pay for his crimes."

Last month a similar case saw former SocGen trader Samarth Agrawal found guilty in a trial on Manhattan for stealing the bank's trading code for use in his new hedge fund job.