Capital rules relaxed for new UK banks New applicants for UK banking licenses will find "relaxed" capital and liquidity requirements and will be guaranteed a decision within six months, under a sweeping plan to reduce barriers to entry and stimulate competition in retail banking unveiled on Tuesday. The headline reform, previously announced by Lord Turner, the Financial Services Authority chairman, would allow new banks to open with capital equal to 4.5 per cent of their assets. That is the bare minimum required by the global Basel III bank reforms and is well below the 7 per cent to 9.5 per cent required of existing banks, depending on their size. The consultation also outlines a series of other changes that could make it significantly easier to start a bank. New banks will generally be subject to the same liquidity requirements as existing banks, unless the Prudential Regulation Authority, which takes over supervising banks for safety and soundness next week, thinks they are a special case. The FSA currently requires new banks to hold additional easy-to-sell assets, which cuts into their returns and ability to lend. The PRA has also committed to "levelling the playing field" between the standardised approach to measuring risk, which most new and small banks use, and the internal models approach, which currently allows big banks to hold less capital against the same assets. The PRA and the new Financial Conduct Authority will work together to revamp the new bank application process to make it easier to succeed and reduce the process from almost two years to closer to one year. George Osborne, chancellor, said: "Our banking system is too concentrated. We want new banks on our high streets offering real competition and challenging for better customer service. I am determined to deliver that. Thirty-nine banks have been authorised in the UK since 2006, but only eight are standalone UK banks; the rest are branches or subsidiaries of overseas institutions. Nineteen applications have been withdrawn, although 11 then reapplied. The changes to the bank application process are multifaceted and set up a twin-track process that could help smaller applicants. For would-be banks that already have much of their funding and infrastructure in place, regulators are offering pre-application meetings to help them understand what will be required. They are also guaranteed a decision within six months of filing a completed application. Applicants who need more time will be offered a staged process, under which they receive a restricted authorisation and more time to get funding, infrastructure and complete staffing in place. The steps are aimed particularly at start-ups, which have in the past struggled to find financial backers but will now be able to point to the restricted authorisation as a seal of approval when trying to raise capital. "We have made some bold changes, ones that respond to the difficulties faced by applicant firms," said Lord Turner, who steps down when the FSA is wound up at the end of March. We believe the changes will make a significant difference to the ease with which new firms can enter the UK banking system and, as a result, enable an increased competitive challenge to existing banks.