New entrants to the banking market will be required to hold only half the capital of established banks as part of a new set of proposals coming in the next month that will be the final act of the the Financial Services Authority before it is split to form the incoming dual regulatory regime.
Speaking to MPs on the Banking Standards Committee this morning (27 February), FSA chairman Lord Adair Turner said encouraging new banking entrants is one of the major changes to the status quo contained in an upcoming competition paper.
Lord Turner said the paper was due to be published in the next month and will be the last output from the incumbent regulator.
New entrants to the banking market will only have to hold 4.5 per cent of their capital in reserve, compared to the 9.5 per cent which will be required by established high-street banks such as taxpayer-owned Royal Bank of Scotland and Lloyds Banking Group.
One reason for this is new entrants will not have to pay a “systemic surcharge” required by the larger more established banks, Lord Turner said.
He told MPs: “This is a significant difference and reflects a philosophy saying we are going to accept in future that the actual failure of a bank... is not necessarily a regulatory failure.”
He warned MPs that the incoming Financial Conduct Authority should not therefore be blamed for future banking failures.
Last year (3 July 2012) Andrew Bailey, managing director of the FSA’s prudential business unit, suggested new firms may be set lower buffers but did not quantify what the difference would be.
