Bank of England aims to boost competition in lending

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By Huw Jones

LONDON (Reuters) – The Bank of England is proposing cuts to capital requirements for credit unions as part of efforts to remove barriers to stronger competition in lending, Deputy Governor Sam Woods said on Thursday.

Woods added that Britain’s departure from the European Union would give UK regulators more room to simplify financial rules.

He said that while prior reforms have led to many new banks being created, none of the new lenders has grown big enough to take on HSBC, Barclays (LON:), Lloyds (LON:) or Royal Bank of Scotland (LON:), the “Big Four” that dominate Britain’s high streets.

After tackling barriers to entry for challenger banks, it was time to tackle the barriers to growth, said Woods, who is also chief executive of the Bank’s Prudential (LON:) Regulation Authority (PRA), which regulates lenders.

Woods said the PRA had mapped out the barriers using a machine to sift through data and rules via text-search, with results cross-checked by humans, before taking a fresh look at capital requirements for credit unions.

Credit unions are member-owned, non-profit co-operatives that offer loans and savings products to members who are often less well off.

The sector is tiny but helps those who find it hard to open a bank account and might otherwise turn to loan sharks or other types of high cost loans.

The PRA is launching a public consultation on proposals to simplify capital requirements for credit unions, Woods said.

“The effect of these changes should be to reduce overall capital requirements for the credit union sector by roughly one quarter,” Woods said in his annual speech to the City of London financial district.

There are over 400 credit unions in Britain with a total of 2 million members. Loans passed 1.5 billion pounds for the first time in 2018 when total assets rose to 3.3 billion pounds, according to BoE data.

Turning to banks, Woods said the current main threshold of 50 billion pounds or above in assets for banks having to meet the bulk of capital and other requirements “feels about right”, Woods said.

He was seeking views of lenders on over 50 different thresholds for capital, reporting and remuneration, with 33 of them imposed by the BoE itself rather than under EU or global rules.

“Should we rationalise and harmonise any of these thresholds? We are now looking at that question and have an open mind on it.”

The machine-search also highlighted the complexity of rules that stretch longer than the Bible’s Old Testament or Tolstoy’s novel War and Peace.

“Small firms tell us that complexity is a real challenge and my instinct is that a simpler — simpler, not weaker — regime for small firms could benefit both our safety and soundness and competition objectives,” Woods said.

“This is an area where we may have more room to manoeuvre following Brexit.”

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