Investment Markets » Banking and Finance
Is This The End Of Free Banking?
The OFT has backed a consumer revolt against excessive bank charges. Will it backfire on all of us?
Champagne corks will be popping in the back rooms of the retail banks – and not just because of the record £38bn in profits they're set to chalk up this year. A far more important reason is that they may be on the verge of achieving their long-term aim of imposing universal charges on current accounts.
Paradoxically, it is the consumer friend and defender of free markets, John Fingleton at the Office of Fair Trading, who has provided this opening. By clamping down on excessive and opaque overdraft fees, he has given the banks the chance to argue for a more rational charging structure.
The upshot is that customers who keep their affairs in good order may soon have to cough up for the sins of the less scrupulous.
An unsavoury smell hangs over Britain's Big Five banks. They now make almost twice as much profit from customers as they did ten years ago. It's blatant profiteering, and customers are rebelling – in an unprecedented consumer campaign, hundreds of thousands are demanding refunds.
The revolt will cause the bankers a headache, but it's unlikely to prove a terminal problem. Bank charges will follow the waterbed principle – squeeze them in one area and they tend to rise up somewhere else. Moreover, the accusations of profiteering don't really stack up. The bulk of Barclays £7.14bn profit was made not from current accounts but from its capital and global investment business.
Higher profits are to be welcomed: they mean more money for the Exchequer and bigger dividends for investors, including many of Britain's pension funds. Ultimately, banks have to be allowed to make decent profits during the good times so they are equipped to weather the storm during the bad.
Barclays has perpetrated its fair share of PR cock-ups in the past, but the new chief, John Varley has been media-trained to within an inch of his life. Hence the carefully worded statement that Barclays is "committed to free banking because it is one of the things our customers value most". This is not the unambiguous pledge it appears. It commits Barclays only to providing free banking for some – but crucially not all – customers.
Between the lines of the carefully phrasing, you can read how the banks might make the transition: it would be done quietly and incrementally. It's enough to make a system of fully transparent charges seem preferable, which is precisely what the banks would like us to conclude.
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