I had just posted on how an app based bank got a licence to open a limited bank in India. One might be tempted to think it is easier to open a bank in UK.
However, this is hardly the case. Kevin Dowd posts about struggles of Dave Fishwick to open a bank in the country:
Tom Clougherty’s recent Alt-M post on competition (or the lack thereof) in UK banking nicely highlights the problem posed by barriers to entry into the British banking industry. That there is indeed an entry problem should be obvious from the fact that Metro Bank, which opened in 2010, was the first new financial institution in the UK to get its own banking license in over 150 years!
What may still not be sufficiently appreciated is the extent to which entry into the British banking industry has been limited, not by the unavoidable challenges would-be entrants must face in attempting to compete head-on with established British banks, but by hurdles erected by British bank regulators.
Nothing better illustrates this fact than the story of Dave Fishwick and his struggle to establish a bank in Burnley, a run-down town in Lancashire, in the northwest of England.
Now that the Bank of Dave is up and running, Fishwick has become something of a celebrity here in the UK. A charismatic self-made businessman, Fishwick grew up in a small two-up-two-down terraced house in one of the poorer parts of the former mill town of Nelson, just outside of Burnley. He did badly at school, which he left at 16. He then began dealing in second-hand cars, eventually moving up from cars to vans and from vans to minibuses. The minibus business then grew to be the largest in the country, making Fishwick a rich man in the process.
Come the financial crisis, bank lending in Burnley dried up almost overnight. Local firms could no longer finance purchases of Fishwick’s vehicles. Soon his business was in trouble. To save it, he himself started lending to his customers. When, after six months of doing so, and despite hard times, not a single customer defaulted, it struck him that running a bank wouldn’t be too difficult.
So Fishwick rented and renovated the lower floor of a vacant £100-a-week shop, installed a cash machine and a safe, and (it’s said) hid the key to the safe behind a bottle of cherryade. He then put a sign above the window saying “Bank on Dave!” and, September 2011, opened shop.
A little more than half a year later, Fishwick had formed some rather caustic opinions about established British banks, which he shares in this Guardian article. “The whole [banking] system,” he observed, “is rotten and it’s ruining the lives of good, hardworking people.”
These events led to him to the think about establishing a bank in the country. And thus began his struggles as well..
Dave’s task to set up a “bank” was far from easy, if not downright Herculean, between the 8,000 pages of forms he had to fill in, the lawyers’ bills and the £10 million minimum reserve that he was required to maintain to get his license.
According to The Guardian, as he went around the City, one expert after another poured cold water on his plans: “They told me that if I use the word deposit or say I’m a bank then I will go to prison.” He was told that he had ideas “above his station” and didn’t “have a chance.” Someone else told him that, in the past, “if you went to the right school and had the right parents you might be considered a fit and proper person to go into the banking industry … [but] there is no evidence you are.” He didn’t have the right accent either.
As an aside, the “fit and proper” test is a real test. As the latest FCA handbook on the subject explains, the key criteria are “honesty, integrity and reputation,” “competence and capability” and “financial soundness.” Curiously, as applied by UK regulators in 2012, both James Crosby, whose aggressive risk-taking led to the collapse of HBOS, and Fred Goodwin, whose aggressive expansion led to the collapse of RBS, both easily met the test — perhaps because they had the right backgrounds and moved in the right circles — and were even awarded knighthoods (though since cancelled) for their services to the banking industry. Yet Dave, who clearly had these “fit and proper” qualities, was deemed not to have them because of his unconventional background. The “fit and proper” test is a joke.
Not to be deterred, Dave mounted a publicity campaign that got a lot of media coverage and elicited a huge amount of public sympathy. His campaign culminated in a Parliamentary hearing in the early summer of 2012, ably chaired by my friend Steve Baker MP (Con., Wycombe). The hearing room was packed and well attended by MPs. “Curious how TV cameras draw in the MPs like moths to a lamp,” Steve said to me afterwards. Dave’s message resonated with the audience: I am only trying to help my community but the regulators won’t let me.
Dave’s story also appeared in July 2012 on Channel 4’s “Bank of Dave” documentary series, which chronicled the challenges he met at every turn. Reckoning he can’t do any worse than the banks who lost fifty billion quid, he sets off to see expert after expert in the City, who tell him that he hasn’t got a cat in hell’s chance. The system is heavily regulated to protect the public, he was told — this at the time when the LIBOR scandal was in full swing and feelings were still raw from the bank bailouts. Dave isn’t put off, however. “Sometimes it’s far easier just to go and do something than to get permission,” he says. He tries to get Richard Branson’s phone number to put him right on the banking system. He tries to get the Bank of England’s number by calling directory inquiries. He then gets through to the Bank switchboard. “Head of t’Bank of England,” he asks. “Thanks … Threadneedle Street? And that’s London?” And so on he goes from one hilarious encounter to another. By the end of the program, Dave has got nowhere.
The documentary got rave reviews, and so did a book, Bank of Dave: How I took on the banks, and another documentary, Dave: Loan Ranger, shown in January 2014, in which he successfully took on the payday lenders, which is another story in itself.
The publicity campaign put a lot of pressure on the regulators, who buckled eventually: they agreed to talk to him and, as Dave acknowledged, they couldn’t have been more helpful guiding him through the regulations.
After all that effort, however, Dave never did get his banking license. Obtaining a consumer credit license to lend is not too difficult, but obtaining a deposit-taking licence is an altogether different matter. You see, deposit-taking is highly regulated in order to protect the public and is also subject to the “fit and proper” test that Dave did not meet: wrong side of the tracks, old boy.
The upshot is that he can run a bank but he may not call it one, and he can take in deposits but he is not permitted to call them deposits. His bank is formally known as Burnley Savings and Loans Ltdand is regulated as a peer-to-peer lender. The best he can then do is put “Bank on Dave!” over his shop window and invite regulators to take the V sign as read.
So has Dave’s campaign prompted major deregulation to help other would-be Daves set up their own banks? Nope. As far as I can tell, the regulatory barriers to entry are just as high as they were before, so no joy there.
All these tales tell you how restrictive things are even in the world’s centre of finance. And they lecture the world on opening banking systems to UK’s highly oilgoplistic banks..