Seven awkward questions Speech given at a roundtable to mark the fifth anniversary of the PRA's Secondary Competition Objective Sam Woods, Deputy Governor, Prudential Regulation and Chief Executive Officer, Prudential Regulation Authority Bank of England Thursday 17 January 2019  1  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  Thank you all very much for coming to our event today, and in particular to our panellists for agreeing to take part. Indeed, I speak on competition with a degree of humility in front of this panel – and particularly in front of Sir John because my first real engagement with these issues took place under his chairmanship when I was working for the Independent Commission on Banking back in 2010. For that reason, and in view of the expertise of this audience, you will be relieved to hear that I am going to avoid giving you a fifteen-minute-long list of all the things we’ve done over the last 5 years to advance our secondary competition objective. Of course I have to do a bit of that or I’m not doing my job! But I’ll just pick out a few items and keep it brief. Nor will I focus too much on some of the hardy perennials of this debate such as low switching rates, because I’m sure others on the panel can do better on those if we want to get into them.
Let me now turn to seven more awkward questions for us. First, how do we square the principle of proportionality with the steeper slope of regulatory requirements this inevitably causes for growing firms? This arises in many ways, where we take a softer approach for smaller firms but this has to be withdrawn as they grow. One example is the steps in our Systemic Risk Buffer regime, which we’ve debated with Sir John in the past – it’s true these could be smoothed to some extent by greater granularity and/or an ‘income tax’ approach, but the basic problem of gradient remains. This issue also arises on the resolution side, which is of course outside the scope of the competition objective – it must be right that we exempt small firms from bail-in debt, but this inevitably leads to a moment when successful firms stop being small and need to start issuing. Second, and related to the first, although we have in my view been pretty successful in encouraging new entrants, it is so far notable that no small bank has successfully become a large bank. Perhaps this will change through time, and it may have much more to do with behavioural stickiness of current accounts than regulation, but it would be complacent to be relaxed about it. As an aside, there may be lessons to be learned here from the general insurance market: it is notable that some of today’s largest GI firms started as small challengers within the last 20-30 years.