Competition and Prudential Regulation

36 Pages Posted: 6 Sep 2017

See all articles by Paul Fisher

Paul Fisher

Bank of England

Paul A. Grout

University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO)

Date Written: September 1, 2017

Abstract

In 2014 the Prudential Regulation Authority, Bank of England, was given a new secondary objective to facilitate effective competition when it advances its primary objectives related to safety and soundness and policyholder protection. Given the concerns around conflict between competition and stability, there has been considerable interest in the new objective. After discussing the precise form of the competition objective and its background, we consider how best it should be interpreted and implemented. Amongst other points we argue that (i) secondary objectives should be seen as mechanisms for forcing, or at least encouraging, co-ordination across agencies and therefore such objectives have a significant role to play in this context, (ii) that time and proportionality are the key dimensions that provide discretion to pursue primary and secondary objectives, (iii) that there is nothing overtly special about competition as a second best tool when it comes to mitigating risk in the absence of good prudential regulation, and (iv) if prudential regulation is set at the same time that the competition objective is ‘in play’, then the conflict between stability and competition tends to disappear, although some ‘tension’ remains at the margins.

Keywords: Competition, stability, prudential regulation

JEL Classification: G02, G28

Suggested Citation

Fisher, Paul and Grout, Paul A., Competition and Prudential Regulation (September 1, 2017). Bank of England Working Paper No. 675, Available at SSRN: https://ssrn.com/abstract=3031799 or http://dx.doi.org/10.2139/ssrn.3031799

Paul Fisher (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Paul A. Grout

University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO) ( email )

Mary Paley Building
12 Priory Road Department of Economics
Bristol BS8 1TN
United Kingdom

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