FSA will loosen rules to make banking more competitive

The Financial Services Authority has announced that it is seeking to relax barriers to new banks in order to make the industry more competitive (release). Some highlights:

  • No longer applying the additional requirements (known as “add-ons and scalars”) which we have previously applied to reflect the uncertainties inherent in start-ups. These requirements often resulted in capital requirements for start-ups being higher than for existing bank.
  • Implementing the Basel III regime by applying at start-up only the 4.5% minimum Core Tier 1 capital requirement versus the 7% to 9.5% requirement which will apply to major existing banks (made up of the Core Tier 1 requirement plus the Capital Conservation Buffer and in some cases a Globally Systemically Important Bank surcharge).

Reduced liquidity requirements for all new banks:

  • All new banks will benefit from a recent reduction in liquidity requirements; and
  • There will be no automatic new bank liquidity premium.

FSA chairman Adair Turner commented:

“This has been a comprehensive review and we have made some bold changes, ones that respond to the difficulties faced by applicant firms. 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 and Bank to loosen rules to set up new banks. Only 3-4 years too late, following both Lloyds and (failed) RBS branch sales.

— Juliet Samuel (@CitySamuel) March 26, 2013