‘Do more to encourage new banks’, founder of Metro Bank tells FSA

Metro Bank founder and former chairman Anthony Thomson last week called for the FSA to go further in its plans to remove barriers to new entrants in the banking sector.

Speaking at a Westminster Business policy forum on retail banking, Thomson said the FSA must do more to reform its capital rules for new banks.

The FSA is publishing a paper on removing barriers to entry in the coming weeks. Last week, FSA chairman Lord Turner said it will include plans to cut capital requirements for new entrants in half.

Currently, new banks are forced to hold 9 per cent capital against their predicted assets after three years. If a bank estimates it will have £1bn of assets after three years, it must hold £90m in capital from its first day of operation despite the assets not yet being accumulated.

Thomson said: “It is incredibly capital inefficient. Why would you put your money into a business that has to hold £90m in reserves against no business?

“I know Lord Turner said he wants to reduce the capital to 4.5 per cent from 9 per cent but it is still far too much money. It is not the quantum but the proportion of your balance sheet and if you have no balance sheet it is still far too much money, whether its 4.5 per cent or 9 per cent.

“What the FSA needs to do is look at how much capital banks need in the first year, then they can hold more capital in the second year, and so on.”

In 2010, Metro Bank was the first firm to gain a UK banking licence in more than 100 years. Thomson left the bank last year as it made plans to launch on the stock market.

Thomson described Metro Bank’s authorisation process, which took two years, as “very, very long” and “Kafkaesque”. He recommended reductions in authorisation times, greater access to the payments system and better bank infrastructure as ways to encourage new entrants.