Metro Bank positioned itself as “a fresh start to banking” when it launched in the wake of the 2008 global financial crisis. It was set up in 2010 as a challenger to the “big five” banks dominating the UK market post-crisis: HSBC, NatWest, Lloyds, Barclays and Santander.
But more recently, Metro Bank has caused concern among its investors for not meeting regulatory requirements on its capital levels. These rules dictate the amount of capital the bank must hold based on the riskiness of its assets, so that it can still operate but also meet any customer withdrawal requests. The riskier the bank’s activities, the more capital it must have on hand.
Regulators use such rules to ensure that banks are keeping people’s money safe. Banks can also help by creating a culture that doesn’t value excessive risk-taking. Our new research shows the extent to which top executives at banks set the tone on risk-taking. The way CEOs and even CFOs talk about risk can offer insights into a bank’s likely financial stability. A more relaxed attitude could be a valuable early warning sign of potential bank distress for regulators.
Policymakers around the world introduced extensive reforms to banking and financial regulation after 2008
Metro Bank is currently operating normally and there is no reason to think its customer deposits are in danger. It has secured new financing, and plans to open 11 more branches. But ongoing struggles with regulatory capital levels means its business model is still being questioned by analysts.
Challenger banks like Metro are often viewed as disadvantaged because they need to keep more money on hand, compared with the UK’s big five. This adds to their costs.
The UK regulator recently rejected Metro Bank’s request to reduce its capital levels, triggering the latest concerns about its stability and causing it to seek more investor funding. The bank subsequently secured this funding, calling it “a new chapter … facilitating the delivery of continued profitable growth over the coming years”.
