By ALEX BRUMMER
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Most people won’t be the least bit surprised to learn that so-called ‘free banking’ is nothing of the sort. While everyone realises that banks use our deposits as they please, we now learn the sheer amount of money that banks make.
The shocking findings are the latest blow for the beleaguered financial sector, already reeling from a series of scandals.
Of course, none of these hidden charges take into account the nearly £1trillion of assistance that we, as taxpayers, have had to plough into the banking system to prevent it crashing in the five years since the credit crunch flared up in August 2007.
Myth of free banking: Banks are ripping off customers by refusing to pay decent interest rates on current accounts
Despite mounting evidence that banks use every opportunity to impose charges on consumers and profit heavily from the so-called ‘endowment effect’ – the difference between the paltry interest rates they pay savers and the heavy charges imposed on borrowers – bank chiefs are desperate to end the tradition of free banking.
What makes this concerted campaign even more egregious is that it is supported by Sir David Walker, chairman-elect of Barclays.
In his first interview since his appointment, the 72-year-old City grandee – who was brought in to clear up the mess created by Bob Diamond following the Libor interest-rate-rigging scandal – said that ‘in principle’ he favoured the idea that ordinary customers should pay for their current accounts.
But it was what he said next that was most offensive.
New role: Sir David Walker replaces Marcus Agius as new chairman of troubled Barclays
Walker declared: ‘Free banking is one of the main problems behind some of the recent scandals and until people understand what the banking services they are paying for actually cost we will not have real competition.’
What utter cheek to suggest that, if the banks had imposed charges on ordinary accounts sooner, they would not have felt the need to rip people off by mis-selling products such as payment protection insurance.
In other words, the boss of a scandal-hit bank was claiming that it was the public’s fault that bankers behaved so despicably, because customers weren’t handing over enough money each month to guarantee their bonuses.
Instead of concentrating on providing a proper service for consumers and small and medium-sized businesses in the way that the Governor of the Bank of England Sir Mervyn King has been calling for, Walker seemed to be blaming the customers for the banks’ own blunders.
It was as if the customers, not the banks, were responsible for the £8billion swindle surrounding the wrongful sale of payment protection insurance to people who did not need it. In Walker’s mind, such profiteering by the banks seems justified by the fact that customers are getting free services on their current accounts.
Of course, it is possible to understand Walker’s desire to improve transparency in terms of charging. But that alone will not change the sullied culture of the banks. No doubt bankers, many of whom find it impossible to see beyond their own fat-cat pay packets, would use the same twisted logic to justify the trend of selling customers premium services, such as access to airport lounges, travel insurance and car breakdown services.
Indeed, these so-called premium accounts are already the subject of a preliminary investigation by the finance authorities and could well be the next big scandal in the banking industry. It is indisputable that customers’ lives are made easier by having bank accounts.
Cash machines offer us instant access to money across the globe, while direct debits are a great convenience, saving bank customers the regular chore of sitting down to write cheques or queue up at the local gas showroom, for instance, to pay in cash.
Having said that, it is outrageous that those who choose to do so, many of them elderly, face punitive extra charges.
Chairman-elect of Barclays, Sir David Walker, declared that 'free banking is one of the main problems behind some of the recent scandals'
But we should never forget that what may appear to be a free service is not.
The cash we leave in our current accounts is freely available for the bank’s own use. It can lend it to other banks or financial institutions, earning an instant return, or even better it can be used to lend to people who have taken on overdrafts, which never come cheap.
For some years, high street banks have been stealthily plotting to end the era of free banking.
Lord Turner, who chairs the Financial Services Authority and is widely tipped to be the next governor of the Bank of England, argued recently that the free current account banking model was the ‘central problem’ of British banking.
In classic banker-speak, he suggested current accounts were ‘sold at below the cost of production’.
The corollary of what Walker, Turner and their colleagues have been saying about the need to end free banking and charge for services is that the banks, in turn, should follow the same principle when it comes to customers who maintain their accounts in credit. This is precisely what banks such as Santander UK do by offering customers a proper, market-related interest rate return on their deposits.
Risk: The cash we leave in our current accounts is freely available for the bank's own use
Also, banks and building societies should be forced to ensure that savers (who outnumber mortgage borrowers seven to one) automatically receive the best rate of interest available on their deposits and ISAs. This would end the disgraceful situation whereby banks discriminate against existing savers, paying them low rates of interest, while enticing new customers with higher rates, cash bonuses and other carrots.
In the aftermath of the bailout of the banking system and the scandals that have shattered people’s trust in the industry, the least that individual customers and small businesses deserve is a square deal.
The debate about free banking, coming as it does while taxpayers continue to shoulder a huge bill for the foolishness and chicanery of the bankers, merely highlights how divorced from the real world so many in the City are.
It is sheer effrontery to shift the burden to the customer. Instead, it is the banks and the ‘banksters’, as the Economist magazine has labelled them, who should be paying a heavy price for their own mistakes.
Read more: http://www.dailymail.co.uk/debate/article-2191211/Banksters-Why-pay-greed.html#ixzz24DnLzyAG
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