Banks to get a Brexit revamp
CITY veteran Keith Skeoch has been appointed by the Treasury to lead a review of banking regulations in what could be the biggest overhaul of the sector since the fallout of the financial crisis a decade ago.
The former chief executive of Standard Life Aberdeen will revisit the stringent rules put in place to rein in banks after several were bailed out by the Government in 2008, including Royal Bank of Scotland, Lloyds TSB and HBOS. The review is also expected to form part of plans to boost the sector after Brexit.
Sources said the Treasury review could trigger a revitalisation of mid-sized banks to help them challenge the ‘big four’ lenders – NatWest, Lloyds, Barclays and HSBC. They said Skeoch’s work will complement efforts by the Bank of England to create lighter touch regulation for smaller banks when Britain leaves the EU.
Sam Woods, head of the Bank’s Prudential Regulation Authority, recently announced plans to create a ‘simpler’ set of rules for smaller banks and building societies.
In a speech in November, Woods said: ‘The reason we have kept up work on this topic is that our exit from the EU provides us with the first opportunity we have had in a long time to make real progress.’
The Mail on Sunday revealed in January that TSB’s chief executive
Debbie Crosbie thought Boris Johnson’s premiership would usher in a ‘more sympathetic’ era for banks. She said the Government’s agenda would take a more ‘considered’ view of mid-sized lenders.
The Treasury has now launched a consultation on how best to ‘take back control’ of decisions affecting the City after the EU exit. It has complained that too much policymaking has been decided by the EU.
But officials will be wary of how any changes could impact a future trade deal on financial services, which was not ironed out in the most recent round of talks. Woods said any new UK regime would not be a ‘race-to-the-bottom’.
Skeoch’s review will examine banks’ investments in risky financial products. It will also look at how efforts to separate retail customers’ deposits from riskier investment banking activities have impacted high street lending.
These ‘ring-fencing’ rules have left large retail banks awash with extra deposits to plough into the mortgage market, pushing down prices and squeezing competitors.
HSBC declared plans to double in size after the rules were introduced in January 2019.
The fierce competition has forced both Tesco Bank and Sainsbury’s Bank out of the mortgage market.
Andrew Montlake, managing director of mortgage brokers Coreco, said: ‘The top few lenders affected by this did actually have more cash to put into the mortgage market. That definitely boosted the mortgage market, and led to more competitive pricing in a lot of areas. It was good for consumers because they had cheaper rates, and there was a real mortgage price war.
‘But many smaller lenders couldn’t follow prices down. The supermarket lenders just couldn’t cope, because they couldn’t compete on price with the big boys and they couldn’t change their criteria to be more specialist.’
Paul Lynam, chief executive at Secure Trust Bank, said: ‘What’s happened is the big banks have been able to use this to drive margins through the floor and drive out a lot of the smaller banks.’
The rules have also been applied to all banks with assets of £25billion or more. It is thought the threshold could be increased to alleviate pressure on medium-sized players such as Santander.