New rules for challenger to help RBS branch sale

Tim Wallace
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THE TAXPAYER could be in line for windfall gains from the sale of 316 RBS branches after the regulator yesterday cut capital and liquidity requirements for new banks.

Anyone setting up a new bank – or establishing one by buying part of RBS – can now put in as little as €5m (£4.2m) in capital to get the lender off the ground.

By cutting the minimum requirement to 4.5 per cent, the Financial Services Authority hopes to make it easier to set up a new bank, boosting competition in the heavily concentrated sector.

The authorisation process is also being streamlined so applicants who are well prepared – for instance those buying existing branches and IT systems – could be up and running in six to 12 months of starting the process.

The reduced requirement also means the owners can expect a greater return on their investment, potentially jacking up the amount they would be prepared to pay for the RBS branches. The state-backed bank’s finance director Bruce van Saun last month said any eased requirements could “sky rocket the value” of the unit after Financial Services Authority boss Lord Turner spoke about the planned changes.

Analysts agreed, suggesting the change could push the price up from the £600m currently expected to somewhere in the region of £1bn, though that remains below the £1.5bn RBS had previously hoped to get from Santander.

“There could certainly be a boost as the unit would generate better returns. With lower capital and better growth prospects in theory it should do better in the sale,” Shore Capital’s Gary Greenwood told City A.M. “That said it depends on who the buyer is – a trade buyer may not get the benefit of the new rules, it would only benefit someone setting up a standalone business.”

But the rule changes may not boost competition in the sector as a whole as much as regulators hope.

“At the margin this makes it easier to set up a new bank,” said analyst Jason Karaian from the Economist Intelligence Unit. “But consider the demand for this – it is not as though there are businesses and groups clamouring to get into the UK market because of any juicy growth prospects.”


  • New banks will only have to hold capital of at least 4.5 per cent.
  • The change means a bank could be set up with as little as €5m (£4.2m) capital.
  • But it will not be allowed to pay dividends to shareholders until it meets the standard 7.5 per cent capital ratio.
  • The rules will get tougher when the bank is deemed big enough.
  • The point at which it needs capital of 7.5 per cent will be determined by the regulator, and is expected to come after three to five years of operation.
  • The Prudential Regulation Authority will also look at changing the way banks measure capital needs in an effort to close the gap between big and small lenders.
  • Liquidity requirements will be reduced. New banks will no longer have to hold a premium just by virtue of being new.
  • Instead the PRA will judge requirements individually, starting from the same level as existing banks.
  • The authorisation process will be streamlined, cutting the amount of information banks need to provide.
  • Applicants will also be given approval in principle by the authorities, allowing them to raise capital and set up systems in the knowledge they will be approved
  • The Treasury launched a consultation to change the payments systems
  • Currently small banks often have to pay big rivals to access the system
  • In future they may be able to access the payment channels in their own right, cutting costs for them and their customers.