Watchdog easing funding rules for small banks could help RBS and Lloyds' sell-offs

By Simon Watkins, Financial Mail On Sunday

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FSA chairman: Lord Turner outlined the scheme to Parliament last week

FSA chairman: Lord Turner outlined the scheme to Parliament last week

Moves by the City regulator to relax funding rules for new banks could throw a lifeline to state-owned banking giants Lloyds and Royal Bank of Scotland, which are struggling to sell hundreds of branches.

Lord Turner, outgoing chairman of the Financial Services Authority, said last week the regulator would relax the rules on how much capital smaller banks would have to set aside against future crises.

The scheme could make it easier for RBS to spin off 316 branches, known as Project Rainbow, that it was ordered to sell by the EU.

After a deal to sell the branches to Santander fell through last year, RBS, which is 82 per cent state-owned, has switched to a plan to spin off the branches as a new bank under the Williams & Glyn’s banner.

The FSA will unveil details of its rule changes at the end of this month, but Turner outlined the scheme to Parliament last week.

Under the plan, new banks will have to set aside a capital buffer worth only 4.5 per cent of their total lending. This will be far lower than the ten per cent for the larger banks.

 

Presenting RBS results last week, finance director Bruce van Saun said if Williams & Glyn’s could be included in the lower capital rules it would make the package ‘much more valuable’ to investors. But until further details of the rule change are announced, RBS said it could not comment further.

The plans could also affect Lloyds’ sell-off of 630 branches to The  Co-op, known as Project Verde.

The deal agreed last July is dragging on and while Lloyds and the Co-op insist talks are continuing, the scheme is thought to be facing difficulties, including whether the  Co-op can satisfy FSA demands over capital buffers in the enlarged group. Lloyds, 43 per cent state-owned, has always considered a spin-off flotation of the Verde branches as an alternative to a sale. Lower capital requirements could tip the balance in favour of this course of action.

Lloyds and The Co-op declined to comment on the potential effect of the capital rule change, but one source said the change could be a ‘very interesting development’ for the Verde plans.

The FSA rule changes are part of a wider programme at the watchdog aimed at removing obstacles for smaller banks competing with the big players. Since the financial crisis, regulators around the world have raised the level of capital buffers that banks must hold with Britain setting higher levels than most.

The new lower levels being proposed for new UK banks are intended to reflect their simplicity and the fact that failure would pose less danger to the wider financial system.

However, the lower capital requirement would be in place only in the early years of operation and new banks would eventually have to meet the same capital levels as established players.

 

The comments below have not been moderated.

Another point. So, to satisfy Neelie Kroes the (unelected) EU Competition Commissioner we create two brand new banks along with another whole two sets of administrations, computer systems AND highly paid Executives on massive bonus payments? At least they will not get profit shares for a hundred years or so! What mad man will buy share in unproven banks which might never pay a dividend? The real stupidity is that the EU decided to punish US because WE bailed out OUR banks. Since then practically EVERY bank in the EU has been supported in some way or another yet we in the UK are the only ones being penalised in this way. WHY Mr Cable not just say EU GO AWAY?

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SO RBS `spin off` branches under the (much respected name in the past) Williams and Glyn`s and Lloyds do the same with the branches the EU is forcing them to sell and they call them TSB. Some years ago people asked me "Are you the Roy Roy who works for the Trustee Savings Bank Bank?"--- A Trustee Savings Bank can no longer exist. Maggie killed them off! To call a commercial Plc Bank a Trustee Savings Bank is now not only impossible (All the TSB Enabling Legislation was Repealed decades ago) it would also probably breach The Trade descriptions Act. Where will the unpaid Trustees come from? Who following the banking crash will buy share in these new banks? So Williams & Glyn`s is owned by RBS and TSB Bank forms part of Lloyds Banking Group. This nonsense has cost both banks hundreds of £millions already. WHY throw more good money after bad? Just tell the EU to `GO AWAY` and leave both banks to make profits so that they can repay you and me.

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