UNFAIR capital rules are stopping challenger banks competing with big lenders by forcing them to hold bigger buffers against the same loans, the British Bankers’ Association said today.
The biggest banks can hold less capital than smaller lenders against the same debts, because they have enough data to prove to regulators exactly how safe the loans are.
Smaller and newer banks cannot do this, leaving them holding as much as six times more capital for the same loans, pushing up costs.
“If the authorities really do want to stimulate competition then they should look to provide the challengers with something that does allow them to deviate from the standardised Basel weights when it is safe to do so,” said the BBA report.
Regulators have taken some steps which help limit the smaller banks’ disadvantages. For instance, the leverage ratio puts a backstop under capital ratios, stopping a bank or building society’s capital ratio falling too low even when it only deals in very low risk loans.
However, this only limits big banks’ advantages, rather than aiding smaller lenders.