Proposals to allow new banks to challenge high street players are a “game-changer”, Liberal Democrat peer Baroness Kramer said today.
But she said it underscored the argument to split up the existing banks, especially RBS.
The creation of new banks to challenge the big four of RBS, Lloyds Banking Group, HSBC and Barclays is a key plank of the Government’s policy of injecting competition into the sector and cut the cost of banking.
In the last week of its existence before it is broken up, the FSA said that new banks will need half as much capital as existing ones while they are setting up.
Baroness Kramer, a former vice-president of Citibank in Chicago as well as an ex-MP, said: “This report is a game-changer. For 100 years the regulator has rejected almost every new bank, leaving us with a banking system dominated by just four institutions, many of whom have abused that power by failing to serve the customer.
“Today’s announcement that the process of applying to be a new bank will now be rational and reasonable and that regulation of small banks and new banks will be proportional and supportive, must encourage new banks and give the public real choice for the first time.
“It will take time for new banks to grow to a size that fundamentally changes the industry but now that process can begin.
“Some new banks will hopefully choose to be local community banks serving those who have been frozen out by the system as well as small and start-up businesses.
“But it still doesn’t answer the question of how we achieve competition more immediately and underscores the argument for splitting up some of the existing banks, especially RBS.”