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.

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.