The chairman of the Treasury Select Committee has called for the Government to seize the opportunity to ensure that post-Brexit capital rules are fairer on challenger banks.
Conservative MP Andrew Tyrie says that Brexit offers the chance to reshape regulation in a way that gives small and new lenders a better chance of success.
His comments come in response to a letter from Aldermore, Metro Bank, Secure Trust Bank, Shawbrook, OneSavings Bank, Hampden & Co Bankers and Charter Savings Bank following the EU referendum result, arguing that they should be subject to less onerous capital rules.
Tyrie says: “Brexit poses risks; it may also create opportunities. Current EU legislation could be placing smaller banks at a disadvantage. This is because it risks imposing a ‘one size fits all’ approach to banking regulation.
The Bank of England and the Government both now need to consider whether the opportunity afforded by Brexit could enable the development of a regulatory regime less prejudicial to small and challenger banks.”
Challenger banks have long argued that they unfairly face steeper capital requirements than larger lenders, in part because they do not have enough capacity or resources to use the so-called internal ratings-based (IRB) approach to calculating credit risk, the committee says.
Andrew Baile, former chief executive of the Prudential Regulation Authority, had previously written to Tyrie highlighting the challenges associated with the EU’s new capital regime, saying “there are limitations to the discretion the PRA currently has.”
He said that, in its response to the EU, the UK regulator had argued against the ‘one-size-fits-all’ approach, which he said “can cause distortions given that the costs of regulation tend to bear more heavily on smaller banks.” Before the referendum result Bailey had promsed he would work closely with the EU to achieve a fairer system.
Tyrie warned that the stakes were high, stressing: “Millions of consumers and small businesses 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.”
This week, in his appointment hearing with the Committee (10:12), Sam Woods, Bailey’s successor as deputy governor for prudential regulation and head of the PRA, admitted that, with some qualification, “there is a genuine issue here”, and agreed with Tyrie’s request to “keep it high on his agenda in his new job”.