I agree. One also fears for many of these “challenger banks” if UK sees a longer recession. A good number may seriously struggle to survive. This below from FT.com a few months ago. It’s sobering reading. Of note, the fundamental flaws of Metro Bank were again highlighted. - Regards. Edit: typo.
"Bank of England finds UK challenger banks cut corners. Regulator says new lenders are ‘overly optimistic’ in risk management.
Caroline Binham and Nicholas Megaw in London JUNE 14, 2019:
"The Bank of England has found widespread weaknesses among the UK’s challenger banks in stress tests that showed new lenders cutting corners in an aggressive pursuit of growth.
A senior regulator at the central bank wrote to chief executives this week, ordering them to tighten standards and correct “overly optimistic” risk modelling.
In what was for some of them a damning assessment, the BoE found that many new lenders displayed an “inability to explain assumptions” in their stress-test models and an “aggressive” focus on growth, even though they tend to make riskier loans.
The intervention shows that regulators are concerned about the behaviour of the challenger banks, whose rise has been encouraged in a bid to loosen the dominance of the big five high street lenders.
It comes after a scandal at Metro Bank, which had to slash growth plans and turn to investors for a £375m emergency share issue after admitting it had misclassified loans and did not hold sufficient capital.
John Cronin, an analyst at Goodbody & Co, said the PRA’s findings would “serve to reconfirm negative biases towards challenger banks in the case of some market participants”.
The confidential BoE stress test reviewed 20 fast-growing, new UK banks and other deposit takers. It found that the banks were underestimating potential loan losses in a downturn, lulled by the “relatively benign credit conditions” that have existed since they were created.
“Most fast-growing firms were overly optimistic about the potential impact of a stress scenario on their business,” wrote Melanie Beaman, the BoE’s senior supervisor, in the letter. “We expect all firms to demonstrate effective engagement and challenge by senior management and boards, with stress testing integrated into the business.”
Since the financial crisis, politicians, policymakers and regulators have tried to break the monopoly of high street banks as part of efforts to boost competition and avoid having institutions that are “too big to fail”.
The PRA has given banking licences to more than a dozen new lenders in recent years in an effort to encourage competition. However, these challengers have struggled to break the stranglehold of the big five — HSBC, Lloyds, Royal Bank of Scotland, Barclays and Santander.
From a more general review conducted at the same time, the BoE observed that challengers tended to have high risk appetites but with modelling that did not necessarily reflect this. Some have particularly weak underwriting standards for commercial loans.
The PRA did not name which 20 challengers it reviewed, although all had a balance sheet of at least £750m, a growth rate of at least 10 per cent since 2010, or since they were created, or a focus on commercial lending.
The test used the same doomsday scenario as for the BoE’s published annual stress test of high street banks — a 4.7 per cent drop in UK gross domestic product, with a 40 per cent drop in commercial property prices and a 33 per cent fall in residential property.
The PRA said that given some challenger banks were so new, weaknesses were “not unexpected”.