Tag Archives: competition

What happened to competition between UK deposit takers over the past 25 years?

Sebastian J A de-Ramon and Michael Straughan.

The landscape for competition between UK deposit takers (retail banks and building societies) was reset in the 1980s with the removal of the bank “corset” (1981), the Big Bang reforms and the Building Societies Act (both in 1986). These reforms facilitated entry and expansion of different business models into markets that had previously been off-limits. What followed was a significant restructuring of the deposit taking sector in the UK. In a new paper, we show that competition between UK deposit takers weakened substantially in the years leading up to the financial crisis.

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Filed under Banking, Economic History, Financial Stability, New Methodologies

Mind the steps: competition implications of graduated approach to setting capital surcharges

Paolo Siciliani, Nic Garbarino, Thomas Papavranoussis and Jonathan Stalmann.

Systemically important banks are material providers of critical economic functions.  The Global Financial Crisis showed how distress or failure of one of these firms may have a severe impact on the financial system and the real economy.  Systemic capital surcharges protect the economy from these negative spillovers by decreasing systemically important firms’ probability of distress or failure.   A graduated approach facilitates effective competition to the extent that the capital surcharges faced by firms are more proportionate to the scale of systemic risks that they pose. This post illustrates some of the competition implications with respect to the methodology used to set the number and level of thresholds.

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Filed under Banking, Financial Stability, Macroprudential Regulation, Microprudential Regulation

The growth of peer-to-peer lending platforms and prospects for banks’ disintermediation – hype or real threat?

Paolo Siciliani.

Peer-to-peer lending platforms (P2P platforms) emerged after the financial crisis by catering for pent-up demand for unsecured borrowing from individuals and small businesses.  Ten years after the conception of P2P platforms, the question is whether they may soon start to penetrate more mainstream lending markets and thereby challenge high street lenders.  For example, according to the latest survey compiled by Nesta, P2P lending for the year 2015 was the equivalent of 3.9% of new loans lent to SMEs, although the outstanding stock of P2P lending is much lower.  This post considers how seriously in practice to take this threat to the traditional banking model.

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Filed under Banking, Financial Stability

Could new SME lending policies be bad for start-ups?

Paolo Siciliani.

Since the financial crisis a focus for policy has been to increase the flow of lending to small and medium-sized enterprises (SMEs): encouraging lending to SMEs is seen as crucial to economic recovery. One of the more recent proposals is to force large banks to share credit data  on their SME customers with rival lenders. The idea is that, by reducing the informational advantage that large banks currently have over their rivals, this could encourage new entrants and growth in SME lending by smaller lenders, which in turn should improve the diversity and hence resilience of the supply of credit to SMEs. However, this post argues that the kind of sharing of SME credit data being envisaged could squeeze lending to SMEs without a credit history.

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Filed under Banking, Financial Stability, Macroeconomics