The chief executives of 13 UK banks have written to the Treasury warning that regulation could prevent them from lending up to £62bn over the next five years.
Midsized lenders, including TSB, Metro Bank and Paragon, sent the letter this month urging the Treasury to amend rules that they say are holding back their growth, increasing their costs and affecting their ability to lend.
The banks that signed the letter are set to meet the city minister Andrew Griffith on Thursday, according to two people familiar with the situation.
The lenders will raise concerns about the MREL or “Minimum Requirement for own funds and Eligible Liabilities” regulations, which aim to ensure the orderly wind down of a failed bank without the need for taxpayer support, the people said.
The rules set out the amount of equity and debt a bank must hold to absorb losses if it fails and apply to any bank that has £15bn or more of assets or more than 40,000 accounts.
The group of banks argue the threshold is too low and disproportionately limits smaller lenders because of the interest costs of the debt they must issue to meet the requirements.
The letter to the Treasury said: “As it stands, the UK has been a good place to start a new bank, as illustrated by the number of banking licences granted over recent years.
“However, whilst the barriers to entry have been reduced, the barriers to growth remain stubbornly high, as demonstrated by the fact that no new bank has yet to become a large bank.”
It said midsized banks are “captured by a regime designed for the resolution of large, systemically important banks. These thresholds put UK mid-tier banks at a significant competitive disadvantage relative to counterparts in the EU and US.”
It added: “The interest cost burden of carrying MREL debt directly reduces the level of capital a bank can hold to support growth.”
It cited analysis by consultancy EY that said the extra cost would reduce lending by about £62bn over the next five years.
The bank lobby group, UK Finance, said in a report last year that when Tesco Bank issued a special bond, it priced 100 basis points higher than the equivalent bonds issued by Barclays and HSBC. “This demonstrates the competitive funding disadvantage faced by mid-tier firms subject to an MREL requirement,” the report said.
The Bank of England made some changes to the MREL rules for smaller banks last year and said it would issue individual transitions plans for banks as they approached the £15bn threshold.
