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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Tory Brexiter Daniel Hannan: Leave campaign never promised "radical decline" in immigration

The voters might not agree...

BBC Newsnight on Twitter

It was the Leave campaign's pledge to reduce EU immigration that won it the referendum. But Daniel Hannan struck a rather different tone on last night's Newsnight. "It means free movement of labour," the Conservative MEP said of the post-Brexit model he envisaged. An exasperated Evan Davis replied: “I’m sorry we’ve just been through three months of agony on the issue of immigration. The public have been led to believe that what they have voted for is an end to free movement." 

Hannan protested that EU migrants would lose "legal entitlements to live in other countries, to vote in other countries and to claim welfare and to have the same university tuition". But Davis wasn't backing down. "Why didn't you say this in the campaign? Why didn't you say in the campaign that you were wanting a scheme where we have free movement of labour? Come on, that's completely at odds with what the public think they have just voted for." 

Hannan concluded: "We never said there was going to be some radical decline ... we want a measure of control". Your Mole suspects many voters assumed otherwise. If immigration is barely changed, Hannan and others will soon be burned by the very fires they stoked. 

I'm a mole, innit.