On January 18, 2016, a letter addressing possible competition issues between established and challenger banks dated October 7, 2015 sent from the Chairman of the Treasury Committee, Mr. Andrew Tyrie, addressed to the Deputy Governor for Prudential Regulation at the BoE, Mr. Andrew Bailey, was published. The letter refers to the potential difficulties challenger banks may face in satisfying the conditions required to use the Internal Ratings-Based approach for calculating credit risk. Mr. Tyrie is concerned that newer banks may be at a competitive disadvantage to more established banks, given that the IRB approach leads to lower capital requirements compared to the Standardized Approach which newer smaller banks would be able to use more easily. The letter asks whether: (i) the new corporation tax regime for banks encourages competition between new and established banks; (ii) adaptations made by the PRA to capital requirements for new banks will be effective in overcoming the competitive disadvantage that new banks may face; (iii) the PRA has plans to make further adjustments to capital or other requirements for new banks; (iv) the PRA is restricted, and if so, to what extent, from making further adjustments to newer banks’ capital requirements under CRD IV or other EU legislation; and (v) there has been a reduction in requests for pre-application discussions with the PRA and FCA since the new tax regime was announced in July 2015.

The letter is available at: http://www.parliament.uk/documents/commons-committees/treasury/Correspondence/Letter-fromAndrew-Tyrie-Mp-to-Andrew-Bailey-on-’challenger-banks’-7-October-2015.pdf.