Bank of England reportedly tightened Monzo’s capital requirements during fundraise

By Oliver Smith on Friday 7 August 2020

Digital Banking

The additional £20m cash crunch likely dragged on the bank's valuation.

Bank of England reportedly tightened Monzo’s capital requirements during fundraise
Image source: Monzo.

Digital bank Monzo was reportedly hit with a regulatory request to increase the amount of capital it holds, just as the bank entered the crucial stages of its recent fundraise.

According to The Financial Times, the Bank of England set Monzo’s capital requirements at more than twice as high as many high street UK banks, leading the bank to tell investors it “needs at least £20m to avoid breaching regulatory capital requirements”.

The funding round in question was Monzo’s recent £60m round, which the bank ended up raising at a 40 per cent discount to its previous funding, reportedly partly due to these increased requirements as investors faced the prospect of their cash sitting on Monzo’s balance sheet as regulatory capital.

Monzo’s capital requirements were lifted from 9 per cent to 13.65 per cent, with a fixed £21m on top, while Starling Bank CEO Anne Boden told The Financial Times yesterday that her bank’s requirements had only lifted slightly to 9.3 per cent with a fixed £3m on top.

The figures are especially curious as Starling yesterday said its total lending volume has exploded in the past six months and is now in excess of £1bn, while Monzo's annual report last week pegged the digital bank's lending at just £143.9m—although the lending itsn't entirely like-for-like given Starling's is mostly business lending underwritten by the Government's CBILS and Bounce Back Loans schemes, while Monzo's is largely consumer.

The Bank of England’s Prudential Regulation Authority has been increasing requirements on fast-growing banks, however these requirements, as in the case of Monzo, can leave players needing to tie-up large quantities of cash that might otherwise have been earmarked for growth.

On the reported figures Monzo said: “All banks, including Monzo, must ensure they plan their capital requirements effectively and hold sufficient capital to meet their current and future needs. Monzo continually reviews its capital requirements as part of the Internal Capital Adequacy Assessment Process”.

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