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FSA To Sweep Away New Bank Barriers

(c) Sky News 2013

The City regulator will set out proposals later this month to slash capital requirements for new banks as ministers try to ferment fresh competition to the industry's dominant players.

I have learned that the Financial Services Authority (FSA) has convened a summit on January 16 at which it will lay out plans to sweep away many of the restrictions that critics have argued have restricted the ability of new banks to get off the ground.

Among those attending the meeting will be representatives of the Treasury, the British Bankers' Association and the Association of Foreign Banks. The regulator's plans will be set out by Martin Wheatley and Andrew Bailey, the managing directors of the FSA.

According to insiders, the main proposal will be to relax the requirement for new lenders to hold comparable capital buffers to established banks during the early stages of their existence. Under current rules, new banks must significantly increase the capital they hold during their third year of operation, a measure that the FSA will propose is abolished.

The existing capital regime has been criticised as excessively onerous by some executives who have attempted to launch banks in the aftermath of the financial crisis.

Only one new high street lender - Metro Bank - has opened its doors in recent times, and ministers are keen to encourage further efforts to assail the dominance of the likes of Barclays (LSE: BARC.L - news) , Lloyds Banking Group (LSE: LLOY.L - news) and Royal Bank of Scotland (LSE: RBS.L - news) .

A number of other projects, including a telephone and internet-based lender called Home & Savings Bank, have failed to see the light of day because of capital-raising difficulties.

Last autumn, Mr Wheatley told the Parliamentary Commission on Banking Standards that the reformed regime for authorising new banks would achieve the Government's competition objectives.

"We are looking at a staged process where we can give new entrants enough certainty to recruit a chief executive and get capital but still reserve our position that they cannot be fully operational until the right things are in place.”

The effort to remove capital obstacles to the formation of new banks comes as regulators intensify pressure on Britain's major lenders to increase the financial buffers in place to protect them in the event of a future financial crash.

The Bank of England, which will assume responsibility for regulating the banking industry this year, has warned lenders that they will need to restrict dividend and bonus payments in order to conserve capital.

The FSA, which is expected to publish its plans early next month, declined to comment on the forthcoming meeting.