The bosses of eight challenger banks have slammed the CMA for failing to push for change on capital requirements

Mark Sands
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Challenger banks argue that capital requirements are unfairly weighed in favour of bigger banks (Source: Getty)

Chief executives from eight challenger banks have slammed the Competition and Markets Authority (CMA) for failing to look at the capital requirements on small lenders.

The CMA's report into the retail banking sector, published last week, called on banks to set maximum monthly charges for unauthorised overdrafts and to ease the process of switching current accounts.

However, in a letter to the watchdog, bosses of banks including Aldermore, Metro and Shawbrook condemned the CMA's failure to even lay out actions required to level the playing field.

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The challengers argue that for every £1 of capital set aside to cover credit risk, a large bank can do 10 times more low loan-to-value mortgage lending than a small bank or capital society, giving their bigger peers a “stranglehold” on the market.

“An ability to use low risk loan assets to access low cost funding which is used to originate new low risk loans, coupled with their huge capital advantages, represents a virtuous circle for the big banks, and enables them to price competitors out of markets. It is a vicious circle for other lenders,” the chief executives' letter said.

“We are disappointed that your latest report does not set out the actions needed by HM Government to create a level playing field.”

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Speaking at the launch of the report last week, investigation leader Alasdair Smith said that while the CMA was concerned about the competitive impact of capital requirements, that remained the remit of the Bank of England and the Basel Committee.

“We've said that there are competition issues there which the Bank of England needs to look hard at. That's a proposition with which the Bank of England entirely agrees. But we simply don't have the power to do anything about it,” Smith said.

The letter to Smith was signed by Aldermore Bank's Phillip Monks, Charter Savings Bank's Ian Lonergan, Hampden and Co's Graeme Hartop, Metro Bank's Craig Donaldson, OneSavings Bank's Andy Golding, Paragon Bank's Richard Doe, Secure Trust Bank's Paul Lynam and Shawbrook Bank's Steve Pateman.

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