Andrew Bailey (pictured), chief executive of the Prudential Regulation Authority (PRA), said the largest challenger bank had a balance sheet of £40bn compared to the largest banks which had balance sheets of £500bn. Major banks and building societies like Santander and Nationwide tended to have balance sheets of up to £200bn, the Telegraph reported.
“To run a full-scale retail bank, a balance sheet of £30bn to £40bn is quite small, and some of the things I have seen in the past is institutions overreaching themselves with balance sheets that do not necessarily support [their growth],” Bailey said.
In order to encourage more competition between banks, a seven-day current account switching scheme was introduced in late 2013 to allow customers to switch to a new provider more easily.
However, to date the scheme has mostly benefited already large banks like Santander, Nationwide and Halifax.
PRA board member Mark Yallop said he was sceptical that challenger banks would be able to attract customers from larger banks, as ‘overwhelming evidence shows they tend to stay with providers they are used to’.
“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,” he said.
