Banking beyond the Big Four
When it comes to the real capitalisation of our banks, I think we’ve come much closer to the US. One of the biggest changes over recent years, which has been very hard on some banks because of the capital situation, is the Minimum Requirement for own funds and Eligible Liabilities (MREL).
MREL was designed to put the onus on banks to bail themselves out rather than the government doing so, which was a major shift across the industry. Here in the UK we also have countercyclical buffers and added capital requirements, but some would argue that this sort of regulation hits banks with a balance sheet of under £50bn too hard. I do believe that’s partly true.
Banks at the moment are having an incredibly difficult time making money on pure lending. Obviously the pandemic required lending covered by government schemes, but we’re still to see the full consequences of this – if and when people default on those loans. That’s inevitably going to cost banks additional money on the administrative costs of dealing with the defaulted loans. I think we’re all worried about if the defaults start to happen in a big way, that it might be because of macroeconomic pressures. But what does the bank, from a conduct perspective, do to help and how can they do that and survive at the same time?
I’m a strong believer in competition and that’s one of the reasons I’m on the Board of Metro Bank. We shouldn’t be beholden to four big banks and have no other option of any other type of customer service. I think that everybody who is sensible in the world should have at least two bank accounts with two different banks.
My personal view is that the capital requirements under MREL hits smaller banks too hard while allowing the big banks to get bigger and bigger. That’s a dialogue that needs to be had between bankers, the government and the regulator. I think that there should be at least some sensitivity to the goal of increasing competition in the sector.
If you drive everything to the big banks that are already making a lot of money through trading and other activities, you squeeze the customer service-oriented banks out – banks like Monzo or Starling or, indeed, Metro – which have a real place in society.