New lending rules for banks: what's really at stake is choice for borrowers

Forget banks' "competitive disadvantages".

“Give us a chance, mate”, seems to sum up the reaction from new banks, to a report by the Independent Commission on Banking which claims they must hold up to seven times as much capital against mortgage loans as their high street rivals.

The regulation behind this state of affairs, specifically the offering of lower capital requirements to those banks able to use their own databases to model risk on individual loans, is being criticised because only the biggest banks have the critical mass to earn the rewards.

Of course, the rationale that capital requirements wouldn’t be lowered unless regulators felt the database resources of those favoured were of sufficient scale to mitigate the risk of doing so sounds a bit dull in its affirmation that bigger, in some cases, really is better in banking.

More stirring, surely, to condemn the rules as stifling to the range of borrowing options available to consumers and small businesses at a competitive rate. Hence comments in the FT about a “glass ceiling” from Arbuthnot-owned Secure Trust Bank and “competitive disadvantage” from new bank Aldermore.

Once again, it’s the unstoppable force of “SMEs must be fed” smashing into the immovable object of “banks must be risk-averse”; a ringing collision that has underscored four years of regulatory discussion like a tireless blacksmith bashing away at the back of a press conference.

What’s at stake in this particular iteration of the discussion is the range of mortgage options borrowers have access to. Regulatory impact on this range is definitely not great for the competitive landscape, and certainly frustrating to smaller banks, but it’s by no means hobbling. Aldermore, for example, is well known for having grown at a blistering rate since its inception in 2009, and has had little difficulty picking up all the new business it has had an appetite for.

It’s more troubling, perhaps, to remember how the same issue of capital requirements can prove fatal to the big league.

“Increased regulatory requirements coupled with additional fiscal charges, the on-going economic malaise and other negative ‘head-winds’ require a serious response”, read an explanation sent to me by the press office of Netherlands-based banking group ING at the end of October last year.

What the statement was casually explaining was the decision by the group – based on pressure on its capital base caused by obligations both to Basel III regulation and the Dutch government – to kick a £1.5bn hole in the UK asset finance market by putting subsidiary ING Lease UK into run-off mode.

ING Lease was hugely profitable, and provided a lifeline for thousands of small businesses in need of equipment finance – but it didn’t matter. It was just too much of a drain on what was available.

Looking at the asset finance market now (where Aldermore is, out of interest, one of the banks racing to fill the gigantic gap left by ING), it’s clear to see how the demands of regulation really can have a brutal impact on the choices available to borrowers. 

Photograph: Getty Images

By day, Fred Crawley is editor of Credit Today and Insolvency Today. By night, he reviews graphic novels for the New Statesman.

Photo: Getty
Show Hide image

A Fox among the chickens: why chlorinated poultry is about more than what's on your plate

The trade minister thinks we're obsessed with chicken, but it's emblematic of bigger Brexit challenges.

What do EU nationals and chlorinated chickens have in common? Both have involuntarily been co-opted as bargaining chips in Britain’s exit from the European Union. And while their chances of being welcomed across our borders rely on vastly different factors, both are currently being dangled over the heads of those charged with negotiating a Brexit deal.

So how is it that hundreds of thousands of pimpled, plucked carcasses are the more attractive option? More so than a Polish national looking to work hard, pay their taxes and enjoy a life in Britain while contributing to the domestic economy?

Put simply, let the chickens cross the Atlantic, and get a better trade deal with the US – a country currently "led" by a protectionist president who has pledged huge tariffs on numerous imports including steel and cars, both of which are key exports from Britain to the States. However, alongside chickens the US could include the tempting carrot of passporting rights, so at least bankers will be safe. Thank. Goodness. 

British farmers won’t be, however, and that is one of the greatest risks from a flood of "Frankenfoods" washing across the Atlantic. 

For many individuals, the idea of chlorinated chicken is hard to stomach. Why is it done? To help prevent the spread of bacteria such as salmonella and campylobacter. Does it work? From 2006-2013 the Centers for Disease Control and Prevention reported an average of 15.2 cases of salmonella per 100,000 people in the US (0.015 per cent) – earlier figures showed 0.006 per cent of cases resulted in hospitalisation. In 2013, the EU reported the level at 20.4 cases per 100,000, but figures from the Food Standards Agency showed only 0.003 per cent of UK cases resulted in hospitalisation, half of the US proportion.

Opponents of the practice also argue that washing chickens in chlorine is a safety net for lower hygiene standards and poorer animal welfare earlier along the line, a catch-all cover-up to ensure cheaper production costs. This is strongly denied by governing bodies and farmers alike (and International Trade Secretary Liam Fox, who reignited the debate) but all in all, it paints an unpalatable picture for those unaccustomed to America’s "big ag" ways.

But for the British farmer, imports of chicken roughly one fifth cheaper than domestic products (coupled with potential tariffs on exports to the EU) will put further pressure on an industry already working to tight margins, in which many participants make more money from soon-to-be-extinct EU subsidies than from agricultural income.

So how can British farmers compete? While technically soon free of EU "red tape" when it comes to welfare, environmental and hygiene regulations, if British farmers want to continue exporting to the EU, they will likely have to continue to comply with its stringent codes of practice. Up to 90 per cent of British beef and lamb exports reportedly go to the EU, while the figure is 70 per cent for pork. 

British Poultry Council chief executive Richard Griffiths says that the UK poultry meat industry "stands committed to feeding the nation with nutritious food and any compromise on standards will not be tolerated", adding that it is a "matter of our reputation on the global stage.”

Brexiteer and former environment minister Andrea Leadsom has previously promised she would not lower animal welfare standards to secure new trade deals, but the present situation isn’t yet about moving forward, simply protecting what we already have.

One glimmer of hope may be the frozen food industry that, if exporting to the EU, would be unable to use imported US chicken in its products. This would ensure at least one market for British poultry farmers that wouldn't be at the mercy of depressed prices, resulting from a rushed trade deal cobbled together as an example of how well Britain can thrive outside the EU. 

An indication of quite how far outside the bloc some Brexiteers are aiming comes from Foreign Secretary Boris Johnson's current "charm" offensive in Australasia. While simultaneously managing to offend Glaswegians, BoJo reaffirmed trading links with the region. Exports to New Zealand are currently worth approximately £1.25bn, with motor vehicles topping the list. Making the return trip, lamb and wine are the biggest imports, so it’s unlikely a robust trade deal in the South Pacific is going to radically improve British farmers’ lives. The same is true of their neighbours – Australia’s imports from Britain are topped by machinery and transport equipment (59 per cent of the total) and manufactured goods (26 per cent). 

Clearly keeping those trade corridors open is important, but it is hard to believe Brexit will provide a much-needed boon for British agriculture through the creation of thus far blocked export channels. Australia and New Zealand don’t need our beef, dairy or poultry. We need theirs.

Long haul exports and imports themselves also pose a bigger, longer term threat to food security through their impact on the environment. While beef and dairy farming is a large contributor to greenhouse gases, good stock management can also help remove atmospheric carbon dioxide. Jet engines cannot, and Britain’s skies are already close to maximum occupancy, with careful planning required to ensure appropriate growth.

Read more: Stephen Bush on why the chlorine chicken row is only the beginning

The global food production genie is out of the bottle, it won’t go back in – nor should it. Global food security relies on diversity, and countries working and trading together. But this needs to be balanced with sustainability – both in terms of supply and the environment. We will never return to the days of all local produce and allotments, but there is a happy medium between freeganism and shipping food produce halfway around the world to prove a point to Michel Barnier. 

If shoppers want a dragon fruit, it will have to be flown in. If they want a chicken, it can be produced down the road. If they want a chlorinated chicken – well, who does?