Free banking should end, says FSA head Lord Turner
" Britons' free bank accounts represent a flawed system which damages banking, says the City regulator who is a frontrunner to govern the Bank of England.
The industry model, offering free accounts to customers who are in credit, stifles competition, warned Lord Turner, chairman of the Financial Services Authority (FSA), He signalled that regulators want an end to the 28-year practice.
“We need to recognise a central problem in UK retail banking – the impact on competition of free-if-in-credit banking,” he said in a speech in London. “One important barrier to competitive entry into UK personal sector banking is obvious – the fact that the core product, the current account, is usually given away for free, sold at below cost of production.
“It is not a sound basis for a long-term trust-based relationship between a competitive banking system and its customers.”
Britain is one of the few countries where customers do not pay a fee for their current accounts. Instead the banks claw back the bulk of the costs of providing branches, online services and cash machines through heavy penalties for customers who go over their overdraft limit or bounce a cheque, as well as through other services.
This can make it difficult for a new entrant to make a business plan “stack up”, said Lord Turner, unless they offer high-margin side products, such as payment protection insurance (PPI), which sparked a mis-selling scandal. "
Free banking should end, says FSA head Lord Turner - Telegraph
So if banks charge for accounts (as they should) it would magically prevent them from trying to sell high margin tulip like PPI?
Sure banks should charge for accounts some reasonable monthly fee, but they also should be paying decent interest on savings - the level of interest should not be much lower than level of interest they charge themselves when they lend depositors money.
" Britons' free bank accounts represent a flawed system which damages banking, says the City regulator who is a frontrunner to govern the Bank of England.
The industry model, offering free accounts to customers who are in credit, stifles competition, warned Lord Turner, chairman of the Financial Services Authority (FSA), He signalled that regulators want an end to the 28-year practice.
“We need to recognise a central problem in UK retail banking – the impact on competition of free-if-in-credit banking,” he said in a speech in London. “One important barrier to competitive entry into UK personal sector banking is obvious – the fact that the core product, the current account, is usually given away for free, sold at below cost of production.
“It is not a sound basis for a long-term trust-based relationship between a competitive banking system and its customers.”
Britain is one of the few countries where customers do not pay a fee for their current accounts. Instead the banks claw back the bulk of the costs of providing branches, online services and cash machines through heavy penalties for customers who go over their overdraft limit or bounce a cheque, as well as through other services.
This can make it difficult for a new entrant to make a business plan “stack up”, said Lord Turner, unless they offer high-margin side products, such as payment protection insurance (PPI), which sparked a mis-selling scandal. "
Free banking should end, says FSA head Lord Turner - Telegraph
So if banks charge for accounts (as they should) it would magically prevent them from trying to sell high margin tulip like PPI?
Sure banks should charge for accounts some reasonable monthly fee, but they also should be paying decent interest on savings - the level of interest should not be much lower than level of interest they charge themselves when they lend depositors money.
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