Suggesting that cash-strapped consumers pay to help the poor banks discredits the man who will soon regulate the City
There is an internal logic to Andrew Bailey’s argument that free banking should end. But as usual with speeches by people who have spent too long in the City it displays a disregard for consumers – who have already paid a high price for the financial crash and who, with an end to free banking, would pay an even higher one.
Bailey, who is head of the organisation readying itself to takeover regulation of the City, has said it before, though not so vehemently, and not with an accompanying call for government intervention. He says banks offering free current accounts disguise the true cost of providing banking services. While it remains in place banks cannot add up the total bill for providing the service in pounds and pence.
This is very worrying. Apparently Bob Diamond and his peers are a bit dim. Maybe he needs an abacus. Surely he can judge the benefits from the subsidy as part of their marketing or the cost of attracting and keeping a customer? This is something thousands of businesses manage to do, but seems to be too taxing for bankers.
Bailey says banks also suffer because free current accounts distort the market by not allowing rivals to challenge each other with different upfront charges. This would be between those banks that offer a £10-a-year account or a £50-a-year account with all kinds of bells and whistles.
Tell that to Tesco and Sainsbury and all the other loyalty card issuers. They don’t charge for a Clubcard or Nectar card. It is a free service. The supermarkets calculate the benefits on the basis that they retain customers (and win new ones). It is not beyond highly paid bank executives to do the same.
Or should the supermarkets be forced to charge for their loyalty cards in the name of transparency. Nothing is free, says Bailey. Except that my broadband service was delivered “free” (modem and cables) and my mobile came “free” when I switched provider. Amazon gives me “free postage and packing”. I know they are making money because I have either signed a long contract or spent lots of money with them. Maybe the government should intervene to end all these practices that distort competition.
However, the most dispiriting argument is that if only banks had been able to charge for current accounts, they would have resisted the temptation to mis-sell other dodgy financial products. In this way Bailey implies that banks only indulged in schemes to fleece their ignorant customers with payment protection insurance because they were denied income from other avenues. PPI became a £5bn-plus scam because the steady income from current accounts was denied by the market and the government.
The reverse would therefore be true – that the cost of insurance, loans, overdrafts and the rest would come down after current account charges become the norm. Pull the other one.
Maybe he should explain his thinking to a judge. His defence of banks would be like a pickpocket saying he was forced to steal wallets because he was denied other sources of income. In his speech, Bailey seems to accept the industry argument that they should make mega-profits. He just wants them to do it in a more legitimate and sustainable fashion. Yet they should forget about mega-profits. Never again should they be seen as vehicles for shareholders to make their fortunes.
For the City regulator to reveal he is the banker’s friend before he has even taken charge should lead MPs who care about the City and its future to call for his removal.
There are many things wrong with bank products, the way they are sold and the lack of competition. But these issues cannot be solved just by giving the Barclays, HSBC, RBS and Lloyds another income stream.