LONDON: Start-up banks in Britain will not need as much capital as their established rivals starting from April, Britain’s Financial Services Authority (FSA) said, in a move to boost competition.
Under pressure from lawmakers to increase choice in a sector dominated by five banks, the FSA unveiled sweeping changes to authorise new entrants within six months, a process that currently takes a year or more.
Capital requirements will be lighter for the first three to five years as long as a new bank can show deposits are insured and that it can be wound up easily without destabilising markets.
Additional requirements that were previously applied to cover uncertainties in start-up firms will be scrapped.
A new bank will need a core capital buffer equivalent to only 4.5 percent of its risk-weighted assets, a level that will be increased as the bank expands.
This is well below the 7 to 9.5 percent that applies to Britain’s “big five” lenders with 83 percent of retail accounts — HSBC, Barclays, Lloyds, RBS and Santander UK.
There will also be reduced liquidity requirements, the FSA said yesterday.
“We believe the changes will make a significant difference to the ease with which new firms can enter the UK banking system and, as a result, enable an increased competitive challenge to existing banks,” FSA Chairman Adair Turner said in a statement.
Andrew Tyrie, who heads a committee of lawmakers examining standards within the industry, said the FSA’s plans appeared to be a step in the right direction.
“The lack of competition in banking has been reinforced by a regulatory regime favouring large incumbents. Customers have lost out as a result,” he said.
The Parliamentary Commission on Banking Standards will publish its own proposals for stimulating competition in its final report due in May.
New entrants have already begun to surface in the wake of the 2008 financial crisis, looking to fill the gap as the big banks focus on shrinking their balance sheets and building up capital reserves to meet new regulations.
Metro Bank became the first new high street lender to emerge for over 100 years when it was granted a banking licence in 2010. Other new challengers such as Aldermore and Shawbrook have also opened for business but have opted not to open branches.
Metro Bank’s co-founder and chairman, Vernon Hill, welcomed the FSA’s plans and said the move towards making a quicker decision on a banking licence was the most significant proposal.
“The biggest problem with the approval process is you had to get the entire bank up and running including the IT system before they gave you approval, so we had to invest a very substantial amount of money pretty much out of my pocket while we were all at risk,” he said in an interview.
Reuters
