Bank of England fears challenger banks won’t overtake larger rivals

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The Bank of England has raised concerns that challenger banks will never be able to overtake their larger, more established rivals.

The Daily Telegraph reports comments made by Prudential Regulation Authority chief executive Andrew Bailey to the Treasury select committee that the difference in balance sheets between smaller players and the big banks may be too large to bridge.

He said the UK’s biggest banks typically have balance sheets of more than £500bn, while the next tier down, including the likes of Santander and Nationwide have up to £200bn each.

This is compared with the largest of the challenger banks which have up to £40bn.

Bailey said: “To run a full-scale retail bank, a balance sheet of £30bn to £40bn is quite small,and some of the things I’ve seen in the past is institutions overreaching themselves with balance sheets that don’t necessarily support [their growth].”

PRA external board member Mark Yallop also told MPs: “The issue will probably be how the challenger banks will be able to cover the enormous distance between where they currently are and the scale that they need to really compete with the incumbent banks.

“Equally important is whether customers show the propensity to switch to the challenger banks as opposed to the overwhelming evidence today which shows that they prefer to stay with the providers they are accustomed to dealing with.”

Treasury select committee chairman Andrew Tyrie said: “One way or another, it is important that small challenger banks can be put in a position where they can mount a more effective challenge than we have had hitherto in the UK.”

A total of 13 new banks have been given licences in the past two and a half years.