New regulator to ban banks from competing too aggressively for more lending business

Tim Wallace
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BANKS will be banned from competing “too aggressively” to raise market share, as regulators fear it will encourage other firms to follow suit in a race to the bottom, undermining financial stability, new guidance showed yesterday.

The Prudential Regulation Authority will also seek to stop large insurers with huge investment portfolios from affecting asset prices with major shifts in their investments.

But both will be enforced by the PRA’s judgement of levels of risk to financial stability, with no hard and fast rules set down.

“A bank could compete for business too aggressively and thus contribute to risky behaviour across the system as a whole,” said the note, published in the Bank of England’s quarterly bulletin.

This means banks’ efforts to seize market share by lowering interest rates and lending standards will be carefully monitored by regulators, keen to stop banks taking too many risks – but also potentially denying customers the good deal banks want to offer to out-compete rivals.

“The PRA will examine both the threats to the viability of a firm’s business model and the ways in which a firm could create adverse effects on other participants in the system by the way it carries on its business,” the release explained.