Small Banks Can't Compete Says Boss
Small banks are at a disadvantage to their larger counterparts and the government is not doing enough about it, according to the chief executive of one of Britain's smaller lenders.
Secure Trust Bank offers current accounts, savings and loans online. It has more than 230,000 customers in the UK but it says it is being prevented from competing for new business by a lack of a level playing field.
Speaking on Jeff Randall Live, the chief executive Paul Lynam said current capital rules enforced by the City regulator, the Financial Services Authority (FSA), gives the Big Four banks RBS, Lloyds, Barclays and HSBC a commercial advantage.
Mr Lynam said the FSA calculates the risks banks take according to the amount of the capital deposits they hold:
"If I wanted to lend you a £100,000 mortgage on a house worth £200,000 and charge you 3% interest rate, if I was a big bank and I was able to fund myself through the Funding for Lending scheme and credit risk weight that at 5%, I estimate that before credit losses I would make about £1,000 a year.
"As a small bank not able to access the Funding for Lending scheme currently and using the 35% risk weight for the standard model I would lose £1,000 per year on that transaction."
"We need banks like us who have got investors willing to invest. We have the availability, we can be lending more to mortgage holders and we can be lending more to SMEs to support economic growth."
In January, the Office of Fair Trading conducted a report into personal current accounts and raised concerns over whether there was sufficient competition in the market.
It said: "The market has become even more highly concentrated since 2008.
"The four large providers now have around 75 per cent of the market, and the financial crisis and recession have weakened the competitive constraint from the smaller providers."
The Independent Commission on Banking agrees that new and small banks had disproportionately higher prudential requirements relative to big banks.
The Treasury confirmed it had asked the FSA to conduct a review of the requirements for new entrants into the banking sector.
A spokesperson told Sky News: "The purpose of the review is to ensure that the prudential requirements of the new Prudential Regulation Authority and the conduct requirements of the new Financial Conduct Authority are proportionate and do not pose excessive barriers to entry or expansion for new entrants and prospective new entrants to the banking market."
The review is likely to conclude in the first quarter of 2013.