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By Iain Withers and Huw Jones
LONDON, Dec 11 (Reuters) - Britain's mid-tier banks have
asked the Bank of England to ease rules introduced after the
financial crisis that they say hamper their efforts to compete
with bigger rivals that have a tight grip on the market.
Four banking industry sources said these so-called
"challengers" have stepped up lobbying in meetings with the
central bank and finance ministry officials in recent months to
ease requirements for holding special debt aimed at shielding
taxpayers from bailing out troubled banks.
Smaller banks have long-argued that rules are stacked in
favour of the "big six" lenders - RBS, Lloyds, Barclays, HSBC,
Santander and Nationwide. These same six have held 70% of the
mortgage market since 2009, according to data from UK Finance.
The challengers also sense an opportunity emerging to secure
changes from pending reviews of some rules next year, and Brexit
triggering a fundamental look at regulation to ensure London
remains a competitive global financial centre, the sources said.
The Bank of England has acknowledged mid-tier lenders could
be facing "barriers to growth" as efforts so far to boost
competition has not led to much change in the market dominance
of the big six.
BoE Deputy Governor Sam Woods signalled in October he was
listening and wanted to do more to help, but he angered bankers
by announcing only specific action to help credit unions, a tiny
sector.
The BoE declined to comment for this article.
The smaller banks include Virgin Money, TSB - part
of Spain's Sabadell, Metro Bank, Co-op Bank
and Secure Trust, as well as fast-growing online
start-ups like Monzo and Starling.
The banks may face resistance from regulators towards
relaxing rules for smaller players after some have had problems,
including Metro Bank which lost its chairman and CEO this year
over a nearly 1 billion pound loan book error, while TSB had a
major IT crash last year.
The smaller banks say the competition push has largely
failed. They also say that so-called "ring-fencing" rules that
protect consumers from banks' investment banking businesses have
made things worse by unintentionally strengthening the hands of
the bigger banks in mortgage lending.
They want Britain to follow the United States and make rules
more "proportionate" for smaller banks even though this
potentially could mean they are higher risk.
GLIDE PATH
Banking sources say the smaller banks want the BoE to scale
back the amount of MREL or minimum requirement for own funds and
eligible liabilities, a form of special debt they have to issue.
This type of debt is written down to replenish core capital
buffers during a crisis to avoid taxpayers having to step in.
The burden of MREL requirements for smaller lenders is such
that the only way to grow is to merge with another lender, as
seen with CYBG's takeover of Virgin Money, bankers said.
They have asked the BoE to replace a blunt MREL threshold
for mid-tier lenders with assets of 12-15 billion pounds with a
"glide path" to make the requirements easier to meet over time
as lenders grow.
UK Finance, which represents Britain's banks, has previously
called for the "disproportionate" regulatory burden on mid-tier
banks to be addressed and for MREL to be reviewed.
MREL was introduced under European Union rules but only
member states like Britain, Denmark and Sweden have set
requirements for banks which have assets below 100 billion
euros. The BoE is due to review the MREL rules and thresholds
next year.
Smaller banks are also pressing Treasury officials to reduce
their regulatory burden as part of an ongoing review launched
last summer, saying "more direct and meaningful action" is
needed.
"Issuing licences to a whole bunch of new banks who have
exactly the same competitive disadvantages as the existing
smaller banks has proved to be a flawed approach," a banker
said.
However one investor with stakes in several challenger banks
doubted there would be much change.
"I'm cynical that there'll be a real change and there'll be
a Damascene conversion to this," the investor said.
(Reporting by Iain Withers and Huw Jones. Editing by Jane
Merriman)
