Top City regulator pushed to raise competition between banks

posted by 4 years ago in News

The deputy governor of the Bank of England has been pushed to “do whatever is required” to raise the competition amongst banks by reducing the entry barriers for challenger banks.

Andrew Tyrie, Treasury Select Committee chairman has exposed that he has written to Andrew Bailey requesting information on the prudential regulations (PRA) which will help reveal how much more money competitor banks have compared to the main and larger banks.

The issue of an imbalance between the top and challenger banks has been highlighted by the Competition and Markets Authority (CMA) after they carried out a thorough investigation and concluded that the market needed to be fairer. Opponent banks have argued for a while now that they are unreasonably facing sharper capital requirements than the larger firms – this is partially because sometimes they won’t have enough capacity and resources to use the IRB (internal ratings-based) which is an approach to measuring credit risks.

Last week Andrew Tyrie asked Andrew Bailey to “provide an average of the required capital ratios of the incumbent banks in contrast to new entrants.” “This would help parliament and the public to quantify the competitive disadvantage under which new banks have to operate.”

A spokesperson from the Bank of England has revealed that the PRA has acknowledged Tyrie’s letter and he “will respond directly in due course.” Bailey spoke out in the autumn time last year by saying the PRA will “work closely with the European authorities” so that they can move away from the small lenders disadvantage regulatory regime that “one size fits all.”

Bailey also said;

“Rules that are more proportionate, are more likely to enable banks of different size and business model to compete on an equal footing across the EU an approach which applied the same rules,

“This is an important issue and one that matters if we are to have growing new entrants and viable challenger banks.”

Regulators and the government have been put under great pressure to lift the competition in British banking in the recent year leading to now it has been pushed even more since George Osborne, announced the new tax back in July’s summer budget – the Chancellor revealed that the government will take an extra 8% of the bank’s yearly profits – this is added to the current corporation tax. The 8% of additional tax is expected to take place this year and it will apply to the banks that are competing against each other plus, building societies which are exempt from the current bank levy.

Andrew Tyrie said;

“The PRA has a competition objective – it should be guided by it” he added millions “have been getting a poor deal for decades because of inadequate competition and choice in banking.

“They will continue to do so, unless the PRA and the FCA supported, where necessary, by the government, do whatever is required to reduce barriers to entry in the banking market to a reasonable level.”

Paul Lynam, Secure Trust chief executive who manages the British Bankers’ Association challenger banks panel told City A.M. that he was welcoming towards Tyrie’s letter by saying “the too big to fail banks utterly dominate UK banking primarily because they have unassailable advantages in funding and capital terms.

“Without far-reaching solutions to the funding and capital inequities, small banks will remain restricted to a narrow part of the market which is undeserved by the larger banks.”

The letter was received as the PRA gets ready to launch its own “bank start-up unit” to help new lenders obtain licenses. Bailey is apparently revealing new details about improving the process of bank licensing on Wednesday.

Head of Businesscomparison.com, Philip Brennan welcomes the intervention,

“Currently compliance is stifling the big banks ability to be creative, challenger banks have also found that they are being slowed down by the minefield of regulation which is stopping them making a significant impact on the market. However, ultimately the winners in this situation will be the customers. For too long the major banks have dominated lending and financial services whilst the challenger banks have been trying to get off the ground. I welcome this focus on increasing competition in the banking sector by reducing the barriers for challenger banks. More competition will mean better deals for business owners up and down the country and that’s what we promote.”