Plans to make it easier for new banks to challenge the dominance of the current “big four” players were announced by policymakers in the UK today.
The Financial Services Authority (FSA) and Bank of England believe new banks should be allowed to hold less capital than larger institutions.
They also want to speed up the timetable for authorising new banks to within six months and provide up-front support during the application stage.
Recent bank entrants in the UK have included Metro Bank and Aldermore but it is felt that there are still too many significant barriers to new entrants.
Relaxing the capital ratio requirements for start-ups to 4.5% against up to 9.5% for major existing banks should make it easier for newcomers to attract potential investors, particularly if the approval timeframe is reduced.
FSA chairman Adair Turner said the proposals were bold changes that responded to the difficulties being faced by applicant firms.
He added: “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.”
It is expected that the rule changes will benefit potential buyers of 315 branches being sold by Royal Bank of Scotland.
On Monday the FSA will be replaced by the Financial Conduct Authority and the Prudential Regulation Authority, both of whom will need to approve new entrants.