The leading association for the banking sector has urged ministers and regulators to implement an action plan to support competition in the banking industry.
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div>The leading association for the banking sector has urged ministers and regulators to implement an action plan to support competition in the banking industry.
The BBA's report Promoting Competition in UK Banking identifies ways to encourage new players to set up and grow.
The report touches on concepts involving deposits and funds, which theoretically would equip banks with more liquidity to use elsewhere.
James Barty, the BBA’s Director of Strategy, said: “The banking industry is made up of a number of different markets, each with its own range of providers striving to win customers every day.
“Many of these markets are already extremely competitive but we want ministers and regulators to make it easier for emerging banks to set up and grow.
"The best way to promote competition is by creating a more level playing field for players of all shapes and size. It’s vital that we don’t treat all banking markets as the same and introduce rules, regulations and costs that smother changes that are already driving competition.”
Stephen Johnson, Managing Director of Commercial Mortgages, at Challenger Bank Shawbrook Bank said: “We welcome the BBA’s calls for a more level playing field in the banking industry. As a specialist lender, we fundamentally believe that borrowers should look beyond the narrow selection on the high street when in search of funding.
“As James Barty says, anything that regulators and ministers can do to encourage competition in banking will only benefit consumers. There are already a range of alternative funders like us and as a group we make an important contribution, channelling funds to UK SMEs and keeping the big banks on their toes with regards to products and services. We look forward to seeing how government reacts to this call to action.”
Joe Breeden, Managing Director at Crystal Mortgages, said: “Lenders such as Aldermore and Shawbrook have been at the core of our business growth over the last three years, and they fully deserve the industry’s support to expand and become a bigger presence in the marketplace.
“The entrance of these challenger banks has been instrumental in moving the economy forwards, with them assessing applications on merit with a view to lending where possible.
“Now the economy is recovering, healthy competition between the challenger and High Street sector should be encouraged, and will undoubtedly lead to better deals for customers.”
The study suggests ways to address each of the issues it believes are facing the challenger banks:
- Level the capital playing field: The required capital levels required to be held for challengers should be less onerous.
- Funding: To encourage the public sector to invest funds into emerging banks, as currently Local Authorities and Government departments do not make deposits in challenger banks.
- Fair pricing of payments: Some challengers say that gaining access to the payments system used by banks can be too expensive and a barrier to entry. According to the BBA this deserves detailed, evidenced based analysis which the new Payments System Regulator will be well placed to conduct
- Proportionate regulation: The report recommends more "proportionality" from regulators, with less substantial banks not obliged to meet the standards imposed on their larger peers for every regulation.
In a statement the body says: “Regulators need to think more about how regulation impacts smaller players.”
On this point in particular, Graham Allen of Commercial Money Matters states that as the market has just undergone a whole regulatory regime, the BBA is: “…almost just crying in the wilderness.”
“Asking for a different set of rules to make the playing field level, but this wouldn’t make it level for the bigger banks.”
Also Mr Allen reminds the possible downfalls to be considered with Local Authorities placing deposits with challenger banks,
“The Local Authorities have been warned off making deposits on smaller banks after the crisis’ with Landsbanki, Icesave and other Icelandic banks because they all lost money.”
In relation to the BBA report, Mark Jones of Omega Commercial Solutions said: “In the last few years we have seen and experienced the positive impact to the lending market that the ‘Challenger Banks’ have provided, giving borrowers and investors a real alternative to the high-street and other more traditional lenders.
He added: “We see competition in the market place as a positive for the customer, however, we also believe that the range of alternative options on offer to the client is just as important.
"The last thing we want to see is another crash so analysis, and pricing reflective, of risk is key, whether related to debt or client return on deposits where applicable.”
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