Anthony Browne is a former director of Policy Exchange and a former Europe correspondent of the Times.
The Government is rightly keen to promote competition among retail banks, but there are limits to what it can do, because the most important rules are set at EU level.
When I ran the British Bankers’ Association, I set up a challenger bank panel to help establish a level playing field between small and big banks, to remove unnecessary barriers to setting up new banks and tackling harmful barriers to growth.
The Government implemented almost all of them, with the noted exception of possibly the most important – the rules on the amount of capital that small new banks have to hold, which can make it up to seven times more costly for them to lend a mortgage than it costs a big established bank. With rules like that, it is almost impossible for new banks to compete with major high street banks on mainstream products such on normal mortgages.
There was a lot of support and sympathy among government and regulators, but the trouble is that these are EU rules, with Brussels in effect gold-plating global standards (called Basel rules) and applying them to all banks of all sizes. The global standards were only ever meant to apply to cross-border banks, but to limit the competitive threat from smaller banks in countries such as Germany and Spain (which have a lot of small banks), they applied the rules to all banks in the EU, however small – including the new banks in the UK.
When Brexit comes, the Government could, if it wished, unleash the ability of challenger banks to compete for mainstream customers in markets such as mortgages. There are arguments against this – but at least the Government will be able to make the choice about where the trade-off should be.