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Barclays’ chair agrees ‘in principle’ with end of free banking

Barclays’ new chairman Sir David Walker says he agrees “in principle” with the end of free banking and believes charging for bank accounts may have avoided recent UK misselling scandals.

In his first interview as chairman, Walker told The Sunday Telegraph that widespread misselling of products such as payment protection insurance and interest rate swaps was “the consequence of not charging for bank accounts”.

He said: “Because banks are not charging, it drives them inexorably into this sort of position.”

Walker, who carried out a review into banking in 2009 and jointly reviewed the FSA’s report into the failure of Royal Bank of Scotland last year, was appointed to the chairman role last week.

His comments echo those of Bank of England executive director Andrew Bailey, who warned free in-credit banking was a “dangerous myth”.

Speaking in May, Bailey said: “I worry the banks may not properly understand the costs of products and services they supply. And I worry also this unclear picture may have encouraged the misselling of products that is now causing so much trouble.”

Evolve Financial Planning director Jason Witcombe says: “Current accounts are being run at a loss in most cases, so banks want to get their pound of flesh from elsewhere. But I am not convinced the fact that people do not pay for bank accounts should be an excuse for misselling, or that banks would not have been so aggressive in selling other products if customers had been paying for bank accounts.”


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There are 13 comments at the moment, we would love to hear your opinion too.

  1. ” …… and believes charging for bank accounts may have avoided recent UK misselling scandals.”

    Recent??? PPI misselling had been going on for over 15 years and probably longer!

  2. Stephen @ Craete Wealth Management 13th August 2012 at 9:35 am

    As a Trainee Bank Manager in the early 1980’s I remember the Midland Bank leading with ‘Free Banking’; that inevitably changed the relationship between the ‘banks’ and their then ‘clients’ who now became fair game as ‘retail customers’.

    The law of unintended consequences and ill thought policy by a group of no doubt short term incentivised executives.

    The poor consumer reaped what had been sown! Its about time the banks were open an honest and treated their customers as clients again, charge them fees for what they prtovide and take the pressure off the themselves from having to subsidise their income by cross-selling unwanted and poor value products.

  3. I hope David Walker does a better job of changing the culture at Barclays than this statement indicates. To use free banking as a justification for cheating the public by the PPI miss-selling, and for the downright lying about LIBOR, seems to suggest more of the same.

    In any event Banking is not free, it is one method the banks have of raising funds which they then lend on (assuming they want to lend it on rather than use it to repair their balance sheets) at a higher rate of interest than they pay. The diferences between the interest rates is the true cost to the banking customer. I am not begrudging the banks making profits this way but do not pretend that this is free banking.

  4. ‘Turkey agrees “in principle” with end to Christmas’

  5. What! Not only do we have no choice to put our money into a bank account but to have no choice to pay bank to put our money in? It is laughable…If I have the choice to choose, my money would be at home with no fee charge.

    Why don’t banks provide customer with good banking service instead of thinking ways to charge customer.

  6. I have no complaints re paying for a service but I cant help but feel that we are all going to pay a price for a plethora of false PPI claims which has cost the banks billions. I know some sales will have been dodgy but a lot wont have been and as it would have cost the banks more to fight the cases, we are all now going to pay the price for the compensation thats been paid out. To all the ambulance chasers firms out there well done! As far as Im concerned you make the banking industry look squeeky clean.

  7. Baby and bath water comes to mind. While the present system appears to be wrong it does allow those on low incomes to afford a bank account.
    Like Pay Day Loan companies, any charge for these near socially excluded customers is relatively higher than for the more affluent. So what is the solution Mr Bailey?
    Does sound odd trying to explain PPI mis-selling and inferring free bank acounts were the problem. The problem was a lack of moral backbone.

  8. Current accounts are not ‘free’. The banks get to use our money all the time we are in credit and during transactions. They do not pay interest.

    If they charge, any such charge should have this interest deducted and any surplus paid to the account holder.

  9. I thought banking was paid for by the massive difference between the interest rates paid on current and deposit accounts and the rate charged on lending?

    Barclays trying to justify introducing charges to cover fines etc for PPI and Interest Rate Swaps?

    Are these people at the top of organisations in the real world?

  10. It’s ok to say that banks make the money on the difference between what they pay for the money and what they lend out at, but banks have had a lot of defaults, fraud , current accounts for the marjority of people have very little in them and lots of transactions, they need to change the charging structure to what IFA’s are being asked to do to there clients, however this will then open up another bag of worms as then you will have lots of people who can’t afford a bank account! Let’s hope they ate sensible about it and charge flat fees! and also give discounts to unemployed and retired people on earnings less than 10,000.

  11. Of course the Banks have costs for running accounts, including defaults, fraud etc, but surely they factor these into the difference between the interest they pay and the interest they charge.

    However, the defaults and fraud etc do not excuse them from employing fraudulent processes when it comes to PPI or LIBOR, nor does it excuse them for the high charges etc for overdraft letters etc where the charge has no relation to the cost.

  12. Maybe the banks will not benefit from RDR as much as the FSA led them to belive ?

  13. Again this is so much nonsense. For those of us in credit banking hasn’t been free for years. On a current account we get no or minuscule interest. So the bank uses our money for free to lend out at 14% and then proposes to charge us for providing it with the wherewithal to stay in business. Incredible!

    It is entirely right that the less prudent should pay the rates – after all if it wasn’t for the prudent they wouldn’t be able to avail themselves of the service.

    This is cock and spin and as soon as a bank charges for credit customers it won’t be long before another organisation comes along and offers (free) banking. As it is with electronic banking the high street account is used for petty cash and the deposits get circulated to high interest accounts (such as they are!) elsewhere.

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