Show Hide image

Regulations come down hard on UK small banks

Glass ceiling.

Small banks in the UK are unable to provide a wide range of loans to businesses and homeowners at competitive rates due to standardised  regulations of the European Union (EU) and Basel III that have imposed a glass ceiling.

As per the new rules, if banks create internal models utilising their loan databases to measure the riskiness of individual loans, they get rewarded with lower capital requirements. The rules will also hamper new entrants and small banks without loans database.

A research by an independent commission on banking has revealed that small banks in the UK have to hold between three and seven times as much capital against mortgages as their bigger rivals. In addition, they must also hold two to three times as much capital against asset-based loans to small and medium-sized businesses (SMEs) as the big banks.

James Cobb, finance director of Arbuthnot, told the Financial Times: “There is a glass ceiling to our banking. In other industries, small players can cause a major distraction to bigger ones. But it doesn’t happen in banking.”

John Baines, finance director of Aldermore told the Financial Times: “The competitive disadvantage is significant. An incumbent has got, on average, seven years on a new bank coming in.”

The Financial Services Authority is planning to release a paper on regulatory barriers to competition in the coming spring. “We are looking at this issue within the context of a wider review,” said the regulatory.

Getty Images.
Show Hide image

Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.