BBA Chief: Give New Banks £30bn Council Cash

New entrants to the UK's banking sector should be allowed to look after local authorities' £30bn cash-pile in an attempt to stimulate competition, the boss of the industry's main lobbying group will say on Tuesday.

Sky News has been told that Anthony Browne, chief executive of the British Bankers' Association (BBA), will call for the measure alongside moves to enable challenger banks to share credit risk data with larger rivals.

Mr Browne will argue that levelling the regulatory playing field between established banks and new entrants will obviate any need for a legal cap on the major lenders' market share, proposed recently by Ed Miliband, the Labour leader.

"We believe that the best way to do that is to allow new banks to be set up and let smaller ones grow. We want to see a concerted effort on the part of the Government and regulators to recognise that regulation is holding back our challenger banks," Mr Browne will say at a banking conference in the City.

"We want councils to be able to invest some of their £30bn of resources in smaller banks and some of the rules on capital for smaller banks relaxed.

"At the moment it is up to eight times’ more expensive for a smaller bank to give someone a mortgage than one of their high-street rivals.

"Allowing challenger banks to share credit risk data could cut those costs and create a more level playing field amongst lenders."

The BBA has been fighting a rearguard action against Mr Miliband's plan since he announced it last month as part of a broader plan to position his party as a champion of consumer rights.

The Labour leader pledged to create two major new high street banks by carving out branches from the quintet which dominates the sector.

But Mr Browne will warn on Tuesday that the plan is misguided, saying:

"A market share cap is not necessary and could have perverse consequences.

"There are only a handful of major supermarkets and few people would say they do not compete vigorously.

"It would be extraordinary if a customer wanted to join a bank and had to go elsewhere simply because that bank had reached an arbitrary threshold."

Mr Browne's call for the Government to free up local authorities to deposit funds with start-up banks is likely to attract a favourable response from ministers.

Vince Cable, the Business Secretary, has floated the idea previously during discussions with start-up banks, which claim they have been held back despite a relaxation of capital and liquidity rules.

More than 20 applications for licences from new banks are being examined by City regulators.

Those which gain approval should also be given easier access to the Government's Funding for Lending Scheme, which provides a supply of cheaper finance, Mr Browne will say in his speech.

Mr Cable is also due to speak at Tuesday's conference, as is Antonio Horta-Osorio, chief executive of Lloyds Banking Group, who will confirm Sky News' disclosure that he wants to see 40% of the company's top 5000 roles held by women by 2020.