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Competition and prudential regulation

Paul Fisher () and Paul Grout ()
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Paul Grout: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 675, Bank of England working papers from Bank of England

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 (search for similar items in EconPapers)
JEL-codes: G02 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-com
Date: 2017-09-01
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