Of Special Interest


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27th July 2012

UK regulator want end to current accounts

Lord Turner used a speech made in London this week to again call for the end of so-called 'free banking' in the UK. He stated, "...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.”

The logic in claiming that the product is offered below cost relies on the the inclusion of all retail costs, such as branches and branch staff, as current account costs and that profits from cross-selling be excluded from the calculation. Many would question the logic of both premises.

The government would be unlikely to associate itself directly with calls for the end of 'free banking' as this will be most unpopular with voters. Equally, it will probably do nothing to stop Lord Turner from working behind the scenes to achieve his ambition. Although the FSA is to be abolished soon Turner is considered one of the favourites to succeed Mervyn King as governor of the Bank of England next year. The central bank is to be the new master regulator of banks. The new Financial Conduct Authority may however be the key regulator under the new regulatory plan that will have control on pricing.