Build, build, building a bank

July 29, 2020

The process of launching a brand-new bank is long and expensive, but since 2013 no less than 22 have sprung up in the UK. Companies like Monzo and Durham’s Atom Bank lead the way and now another North East challenger, focussed on property development finance, is on the horizon. Richard Dawson sits down with Steve Deutsch to find out how he engineered a career during the financial sector’s ‘Big Bang’ and what his plans are now as chief executive of the soon-to-be Great British Bank

With the exception of New York City, London is the largest financial centre in the world – the towering skyscrapers of City of London and Canary Wharf synonymous with the capital’s global image.

It was not always this way. In October 1986, a number of financial regulations on things like fixed commission charges, trading procedures and foreign market access were abolished, triggering an explosion of activity that is now referred to as the ‘Big Bang’.

This, combined with London’s swift adoption of electronic trading technologies, rapidly accelerated the growth of capital markets in the UK and cemented the city’s dominance in the global financial system.

Somewhere caught up in the euphoria that engulfed the City of London in 1986 was a young graduate, Steve Deutsch, looking to engineer a career for himself in banking.

Taking after his father, who worked as a mechanical engineer, in the Midlands, Steve studied chemical engineering at university before a summer internship in corporate finance at Barclays took him down a different path.

“It’s the old adage of, a good university degree is good training for the mind and you can apply that wherever you wish. In my case, it’s been financial services,” Steve reflects.

Steve’s first job in finance was with Lloyds Bank in the recently revolutionised City of London.

Putting his engineering mind to good use, he quickly moved into project management, which was all about integrating businesses, outsourcing services and putting strategies in place for business transformation.

After 19 years with Lloyds, during which Steve oversaw the bank’s merger with TSB and became group project services director, he decided to take on a new challenge with Wesleyan Assurance Society in Birmingham.

That was in 2005 when Wesleyan was one of the largest mutual life assurance companies in the UK with around £4 billion of funds under management.

Steve’s main achievement at Wesleyan was transforming its banking subsidiary from a small retail-focused bank into a large specialist commercial bank, with a particular emphasis on SME lending.

By the time Steve left in December 2018, Wesleyan Bank was lending around £250 million per year across three different sites with quadruple the headcount.

After 30 years working as a change director in an industry that had changed beyond recognition, Steve decided to take a break in early 2019 to recharge his batteries and think about what he wanted to do next.

When the opportunity to join Great British Bank (GBB) came up, Steve couldn’t resist getting involved.

“It was too good an offer to pass up being able to set up a bank from scratch,” he says.

GBB was the brainchild of North East entrepreneur Stephen Black.

Identifying a gap in the market for a lender dedicated to property development finance, Stephen created a business plan for a new bank and drew on his network of local high net-worth individuals to get GBB off the ground.

Steve, who took over from Stephen as GBB boss in 2019, says: “Stephen’s background is in wealth management and he had a lot of contacts who he encouraged to invest. We have quite a diverse investor base at the moment, which is drawn mostly from the North East.

“That had got us to where we are today, but obviously we need to press ahead because building a bank is quite expensive.

“We’re branching out to more significant investors whether that’s private equity, venture capital, local authorities or pension funds. “What we want is a diverse base that encompasses both individuals and corporates.”

The process of building a bank is long and arduous, with 75 per cent of would-be banks failing before the banking licence from the regulator, the PRA, is secured.

The banking licence is crucial for lenders looking to raise funds from depositors, which GBB is. It is the pre-requisite for being included in the Financial Services Compensation Scheme (FSCS), which covers deposits of up to £85,000.

“To get a banking licence takes four years on average,” Steve explains. “The first half of that journey is getting the team together, taking the idea from a whiteboard and creating a documented business plan.

“You’re then having a series of bilateral conversations with the regulators to get them comfortable with the concept. That can take two years at least.”

The PRA – part of the Bank of England – then invites you to apply for a banking licence.

Steve continues: “In mid-January this year, we were invited to apply for the licence so now it’s just a question of how long. It can be no quicker than 12 months and no longer than 24 – it’s a statutory timetable.

“What determines it for us is our ability to raise the funds and build the bank. Typically, this takes 18 months.”

If all goes well, GBB could be in a position to launch as a fully-fledged bank with attractive savings rates for depositors by the third quarter of 2021.

The bank’s raison d’etre is to provide much needed loans to SME property developers.

“The reason we have targeted that niche is because there is clear evidence of a massive under supply of loans in the property development sector, particularly in the regions,” Steve explains.

“By lending to property developers, we will create jobs for people in the construction industry and play our part in the levelling up of the regions – we’ll be riding the wave of ‘build, build, build’.”

They say timing is everything in business and, given the resources Government is funnelling into the construction industry to spearhead the economic recovery, GBB could be in the ideal position to capitalise.

Steve adds: “The announcements about levelling up the regions and the ‘build, build, build’ agenda is music to our ears because it supports everything that we set out to do.”

GBB is also going to be in the enviable position of having a blank balance sheet when it launches in Q3 2021.

Where existing lenders will have their hands full with Government-backed loans and finance provided to firms to get through the coronavirus crisis, GBB will be able to meet the demand without having to look over its shoulder.

Providing small scale loans of between £1 million and £5 million to firms that want to build residential or commercial property, GBB hopes to employ 120 people over the next five years, but this is just a fraction of the jobs created if its plans come off.

“If we succeed in lending what we plan to, we’ll indirectly create 23,000 jobs in the North East,” Steve predicts.

To make GBB’s highly ambitious vision a reality, Steve has appointed Monzo co-founder, Paul Rippon, to chairman of the board.

Monzo is one of the most successful challenger banks to have emerged in the last decade. The fintech company has a valuation of £1.2 billion, employs 1500 people and looks after more than 4 million customers worldwide.

Steve says: “Paul absolutely believes in the proposition and frankly, it helps because his profile is huge and, as a fledgeling bank, profile is really helpful.

“Above that, of course, he’s very experienced.”

As GBB inches closer to its ultimate goal of raising billions of pounds from depositors and lending billions more to SMEs, Steve once again finds himself caught up in the excitement that first attracted him to the banking industry all those years ago.

Great British Bank (GBB)

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