Comment: No game changer but step in the right direction

The position of the five big incumbents – Barclays, HSBC, Lloyds, Royal Bank of Scotland and Santander UK – is too entrenched for that, in both consumer and small business lending.

But that is no reason to pooh-pooh the move as it is clearly a step in the right direction of improving competition in a vital sector that is over five times the size of the UK economy. Gradual, incremental improvement to a sector may lack surface pizzazz, but it can still be valuable in the wider shape of things.

The FSA, in particular, could have had a worse valedictory contribution as it prepares to hand over its responsibilities on Monday to the Prudential Regulation Authority (prudential issues, primarily financial strength of banks and insurers) and the Financial Conduct Authority (conduct issues, such as mis-selling).

There have always been two main hurdles to new entrants: hobbling capital and liquidity requirements, plus a drawn-out regulatory process to get a licence that could take up to two years and drain a lot of initial enthusiasm.

The recent reduction in liquidity requirements will help all new banks, and now, crucially, the FSA and BoE have said start-ups will only need a core tier 1 capital ratio of 4.5 per cent. That compares with the 7 to 9 peer cent requirement applying to bigger, established banks, sometimes including a Globally Systemically Important Bank surcharge.

Regulatory bureaucracy is also being cut (the FCA has as part of its remit the obligation to promote competition), with the aim of processing start-up bank licence applications within six months.

Bankers who have done the course under the old regime attest that it can be debilitating, and this development is also welcome. Some may argue that it is a risky road to downgrade the barriers to new banks. But these new entrants, by their very nature of being much smaller, would not be a systemic risk if they do go down.

And the regulators are to revisit their capital strength and size after one year, three years, and five years operation to see if they have grown to an extent where the tougher requirements should apply again.

In short, they are balancing the need for safety with trying to get the economy going again. Very welcome, but no punch-the-air moment.

Osborne’s clearly not in favour of a split RBS

It did not need semaphore at the Treasury committee yesterday to work out yet again that Chancellor George Osborne is unenthusiastic about splitting Royal Bank of Scotland into good and “bad” banks to get rid of its toxic assets.

Osborne said whatever the pros and cons of such a good bank/bad bank split: “I don’t think it could be very swiftly delivered.” In the current state of the UK economy and the health of the banking sector, this looks code for, it ain’t a runner, gentlemen.

The Chancellor also expressed doubts about whether a cleaned-up RBS would be in a better position to lend to the real economy.

On the balance of probabilities, then, I think the government is going to stick with another Plan A – i.e. letting RBS boss Stephen Hester persevere with the turnaround, already four years into a five-year programme.