RBS chief executive Stephen Hester has warned banks will be forced to increase the costs of their services if they are to meet the demands of politicians and the public.
Speaking at the 2010 British Bankers’ Association Conference in London today, Hester said it is time for banks to reassess their role in “serving the public interest” but warned this will come at a cost.
He said: “Banks can only serve society if they can sustain private capital and return to shareholders their cost of capital. So, safer banks inevitably goes hand in hand with a lower supply of higher priced banking services – especially credit, but hopefully to a world which values saving versus borrowing a bit more than before as well.”
Hester also defended the banking sector’s use of the wholesale markets as a means of funding mortgages.
He said: “Retail deposits are generally protected by insurance and it is very rare for retail deposits to fund investment banking activities directly. In fact in the UK the opposite is true – wholesale markets are needed to fill the funding gap in retail banking from our national desire to borrow more than we save as households.”
Hester said he supports reform of the banking sector but warned that nothing cane be done to stop a bank, large or small, from collapsing.
He said: “Even when we have vastly reduced the probability of bank failure we need to deal with its eventuality. The direct impact of bank failure must be capable of smoother, faster and more certain handling.”
Hester also played down the potential for new entrants into the banking sector. He said while he “embraced” competition and diversity in his market, he warned that the UK banking sector is too capital intensive and too mature for new entrants. He said existing competition and consolidation was a better means of driving improvements.
He said: “We should not kid ourselves. I cannot think of any country in the world where the number of banks are actually going up.”