UK to cut capital requirements for new banks

By Huw Jones

LONDON, Feb 27 (Reuters) - New banks in Britain won't haveto hold as much capital initially as established rivals in aconcession aimed at increasing choice in a market dominated byfour lenders, the Financial Services Authority said.

The watchdog's chairman Adair Turner told a UK parliamentarycommission on banking standards the FSA will publish a documentin coming weeks on removing barriers to entering banking.Barclays, Lloyds, RBS and HSBC account for 80 percent of high street deposits.

"The biggest change we are making is on the prudentialside," Turner said, referring to capital lenders must hold.

"In the past we have had pretty much the same capital andliquidity rules for new entrant banks as for existing players,"Turner said.

He said an entrant would still have to show it could bewound down smoothly and with depositors paid rapidly.

New entrants would be able to start off with a core bufferof 4.5 percent, the starting minimum under new global rulesknown as Basel III, while Britain's big lenders will have tomaintain buffers of 9.5 to 10 percent because of their size.

New entrants would be given time to build up to 7 percent,the minimum required by the end of 2018 under Basel III.

Turner said the authorisation of top officials at newentrant banks can also be speeded up.

The Financial Times reported on Wednesday that theCo-operative Bank's deal to buy more 632 branches from Lloyds isunder threat because the Co-op faces a 1 billion pound capitalhole.

The FSA will be scrapped next month, its powers dividedbetween the Bank of England to oversee capital levels, and a newFinancial Conduct Authority.

The FCA will get powers to boost competition and its head,Martin Wheatley, said a competition director will be announcedsoon and a market study on the general insurance has begun.

"The real change is disruptive technology and mobile bankingwill be a big change... Structural change to the market could beone of the sets of powers we could use," he added.

Turner is also looking at whether banks are holding enoughcapital to cover exposures to "prime" or higher qualitymortgages and further "underpinning" may be needed such asSweden has announced.

Banks have already had to start holding more capital againstexposures to commercial property.