By Matt Scuffham
LONDON (Reuters) - British startup lender Charter Savings Bank was cleared on Wednesday to start taking deposits as authorities try to encourage the formation of new banks to take on the dominant "big four".
The award of a banking licence to Charter Savings comes after Britain last year made it easier for new banks to launch, cutting the length of time it takes to apply for a licence and lowering the amount of capital new banks must hold.
The new bank's parent company Charter Court Financial Services, was founded in 2008 and is majority-owned by U.S. hedge fund Elliott Associates. The Wolverhampton-based business employs 250 staff and will run Charter Savings Bank alongside its Exact and Precise mortgage brands.
Chief Executive Ian Lonergan told Reuters that the bank, which will save on start-up costs by not having branches, plans to take customers from bigger rivals by offering better rates. Many British savers have become disillusioned by the savings rates offered by established financial services firms.
The bank will begin offering products including fixed rate bonds and savings accounts from March.
"They will be pretty simple savings products but with very competitive rates. The incumbents don't offer such great rates and our research tells us customers are prepared to move to challenger banks," he said.
Lawmakers and regulators are keen to see challengers appear to break the grip of Lloyds Banking Group (L:LLOY), Royal Bank of Scotland (L:RBS), Barclays (L:BARC) and HSBC (L:HSBA) -- which account for more than three-quarters of lending to individuals and small businesses.
Some lawmakers say a lack of competition contributed to the financial crisis of 2007 to 2009 and subsequent scandals.
Britain's Financial Conduct Authority was last year handed a new remit to promote competition within banking. Andrea Leadsom, a UK minister with responsibility for financial services policy, said moves to promote competition should take priority over increased regulation of the industry.
The appetite for new banks contrasts sharply with the attitude of regulators during the financial crisis. Minutes from meetings of Bank of England officials during the crisis which were published for the first time on Wednesday showed regulators had wanted fewer home loan providers.
"Arguably there was an economic need for rationalisation in the number of mortgage lenders –- the Bank should not be seen to be seeking to preserve the existing number of players in this market," the minutes say.
Charter Savings has become the third new bank to be granted a licence since the new rules were introduced, following Paragon (L:PARA) and Scoban.
(Editing by David Holmes and Jason Neely)