Net Interest - Britain's Newest Bank
When the UK set up a new body in 2013 to oversee bank regulation, policymakers gave it a goal to promote competition alongside its principal mission of ensuring safety and soundness. Supervisors embraced the mandate by allowing the formation of many more banks. They launched a New Bank Start-up Unit in conjunction with their sister agency, the Financial Conduct Authority, to help usher firms through the process and, over a ten year period, awarded licenses to 37 new banks. For the most part, the new banks were small. Many didn’t even survive – nine are no longer authorized. Monzo has since grown to £13 billion of assets and a staff of over 3,000, but when it became a bank in 2017, it had assets of £20 million and a workforce of 65. Authorized in May of this year, newly designated SilverRock Bank has a workforce of just six. Five years into its life, Sam Woods, CEO of the new body known as the Prudential Regulation Authority (PRA), reflected on its challenges. He highlighted the tension that exists between its two objectives. Managing safety and soundness while also encouraging competition “is doable but it is tricky,” he said. Approving smaller banks might mitigate some of that tension, but it doesn’t eliminate it, since small banks are no less likely to get into trouble than larger banks, particularly when they are fast-growing, concentrated in higher-risk niches and untested in a downturn. The struggles of Metro Bank prove the point. Woods also observed that despite his best efforts as gatekeeper to the market, no small bank had successfully become a large bank. He surmised that the behavioral stickiness of current accounts may be a greater advantage to incumbents than regulation – a feature another UK agency has sought to address with limited success. Still, developments in the insurance market show what is possible: Some of the UK’s largest general insurance firms started as small challengers less than 30 years ago. This week, the Prudential Regulation Authority approved its biggest bank yet. Revolut had been seeking a license for three years but its size and complexity made progress slow. On Wednesday, it finally got its wish. With 9 million customers already in the UK and 45 million worldwide, it will be the largest new bank to enter the UK market on the PRA’s watch. Cautiously, the PRA has attached restrictions. Revolut will initially enter a “mobilization” stage of up to a year in which it is supposed to complete the remaining build-out of its bank. It’s unusual that an entity of Revolut’s existing size should go through such a phase. Mobilization is principally designed to enable new banks to secure further investment, recruit staff, invest in IT systems and commit to third-party suppliers ahead of a complete transition. Revolut already has £1.6 billion of capital, 331 employees in risk and compliance functions and has spent £95 million on IT and communications over the past three years. Yet the stopgap allows the company and its regulator time to operationalise the transition plan and hammer out details. For Revolut, a banking license is a boon. As an “e-money” institution, it has always been permitted to take in customer funds but it could never invest them. Customer funds need to be safeguarded in ring-fenced accounts, limiting the returns it could extract from its balance sheet. As a bank, Revolut has more options. It gains access to the Bank of England, where it can park deposits overnight at the policy rate (currently 5.25%), it can make loans (at even higher rates) and it can invest in securities (somewhere in between). It also gains access to the Financial Services Compensation Scheme which provides deposit protection of up to £85,000 per customer together with the seal of trust it confers. The issues we discussed a few weeks ago currently facing certain fintechs in the US illustrate the risks of parading as a bank without quite being one. With license in hand, Revolut is reportedly in the process of securing a $45 billion valuation via a secondary share offering. This would make it more valuable than both NatWest Group and Barclays, whose origins predate Revolut by centuries. Does the new license underpin such a valuation? Let’s dig into its balance sheet to see... Subscribe to Net Interest to unlock the rest.Become a paying subscriber of Net Interest to get access to this post and other subscriber-only content. A subscription gets you:
|
Older messages
Private Equity for the Masses
Friday, July 19, 2024
The March Towards “Democratization” ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
Smashing the Monopoly
Friday, July 12, 2024
The Latest Challenger to Take On Chicago ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
The Trump Trade
Friday, July 5, 2024
Previewing the Privatization of Fannie and Freddie ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
Housing the Young
Friday, June 28, 2024
The Crisis in the Structure of British Housing ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
Research in Motion
Friday, June 21, 2024
AI and the Companies Using it to Shake Up Investment Research ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
You Might Also Like
Longreads + Open Thread
Saturday, September 7, 2024
Efficiency, Diversification, Scrolls, Klein, FedEx, Regulations, Capital Gains Longreads + Open Thread By Byrne Hobart • 7 Sept 2024 View in browser View in browser This issue of The Diff is brought to
Are you in debt?
Saturday, September 7, 2024
Depending on your situation, debt relief and credit repair could be an option ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
✂️ Snip, snip, America
Friday, September 6, 2024
US rate cut predictions, Uber's major debt, and a strange obsession with fridges | Finimize TOGETHER WITH Hi Reader, here's what you need to know for September 7th in 3:13 minutes. ✍️ You can
Roll With It
Friday, September 6, 2024
Ticketmaster: The Willing Fall Guy ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
Harry's Rant 9-6-24
Friday, September 6, 2024
Harry's Rant September 6, 2024 Did we finally hit the top in the financial markets and what will be the Feds next move to combat the inevitable Crash of a Lifetime? Harry Dent posts his Rant
📉 Intel's big bet failed
Thursday, September 5, 2024
Intel's plan to take on the likes of Nvidia, (nearly) trillion-dollar active ETFs, and ChatGPT's church skills | Finimize TOGETHER WITH Hi Reader, here's what you need to know for September
Diving deeper into gold investing
Thursday, September 5, 2024
You could protect your finances from volatility. Diversifying your portfolio with a Gold IRA can help protect it Gold's historic stability By adding a Gold IRA to your portfolio, you could
2 sentences that put your portfolio into absolute overdrive
Thursday, September 5, 2024
See what these sentences are...
✅ Your fall money to-do list is here
Thursday, September 5, 2024
Plus, do you have to buy a home to build wealth? ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
The AI-Driven Future - Issue #484
Thursday, September 5, 2024
From job cuts to smarter decisions, AI is redefining financial services and setting the stage for the next wave of innovation. September 05, 2024 FinTech Weekly brings you the latest on how AI is