RADICAL new rules to bring more competition into the banking market paid off yesterday as Paragon Bank became the first lender to get a new licence under the system.
It is only the second new licence to be awarded in more than 100 years – the first was Metro Bank in 2010.
Paragon Bank will not be a high street lender, instead using the licence to move into online savings accounts and consumer loans.
Its first loans will come in the car finance sector, sold through dealerships. In the spring it will start offering consumer savings accounts, later moving into consumer loans.
It is the third unit to set up in Paragon group – the others are a buy to let mortgage business and a debt purchasing unit.
Paragon sent its initial application to the authorities in July, meaning the process took seven months.
That is a huge acceleration from the previous licencing system – Metro Bank had to wait 18 months for its licence to come through.
Part of the improvement is in the more detailed information given to applicants, while capital rules have also been changed.
Previously new banks had to hold more capital than established lenders. Now they have to hold 4.5 per cent core capital, below the seven per cent at older banks.
And previously banks had to hold enough capital on day one to meet anticipated needs in five years’ time. That is no longer the case.
“This is a far more efficient system for a business like ours,” group chief executive Nigel Terrington told City A.M. “From our experience the process was very thorough but very straightforward.”
Former chief of ING’s UK arm, Richard Doe, will head the banking arm.