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RBS chief says cost of banking to rise

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.”

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. How do the “demands of politicians and the public” upon the banks compare to the demands of the banks upon society?

    I think Mr Hester needs to meet some ordinary people who have already seen their banking costs rise to meet the demands of the directors and officers who have retired on a bed of clover.

  2. And to fund this we have just removed interest payments to credit balances on all our form of current accounts and increased interest on debit balances. You can of course have a savings account with us at our outstanding AER of 0.3%.

  3. Agreed, perhaps the extra cost to the customer should be funded by their previous Cheif Executive and Board as opposed to funding their pensions!

  4. Okay this just goes to show how arrogant bankers are and that we are in need of urgent legislation to stop bankers from passing on the costs to consumers.

    I’m all in favour of making sure that shareholders are protected but in reality what they are trying to do is to make sure that their salaries and bonuses of protected. If bankers were so interested in protecting shareholders interests why would they award such large pay deals as this has effect on bottom line profit and reduces dividends to shareholders.

    An example of excesses would be Merrill Lynch £1 billion pay award to its top staff. What extra dividend payments could have been paid to shareholders is my question if these payments haven’t been awarded.

    Peter

  5. As unplesant as it may seem to many, the people who receive such bonuses get them because they have earned them. What dividend payment would have been paid at all IF their top staff were not employed by them in the first place.

    Returning to general banking, We are one of the only countries still used to free banking – either we leave things to the banks to sort or we have to accept we have to pay for the service.

  6. I would like to invite Mr Hester to meet some ordinary people that are struggling to meet their day-to-day bill and get by on below average earnings. Some of these people that wear Gucci suits and fly around in Jets from earned on the back of excessive bank charges and interest rates on credit cards and excessive risks with with depositors money need to get a dose of reality.

    I would like Mr Hester to spend a week with me meeting ordinary people to see the harm that bankers excess has caused and the problems they continue to cause.

    This is not the politics of envy it is the politics of social justice and corporate responsibility.

    Peter Herd

  7. So, we gave the banks £billions to save them from going under. As tax payers, Mr Hester is to all intents and purposes a public employee.

    I can’t afford to take the family on holiday this year and Mr Hester is talking about increasing my bank charges and reducing access to credit for the company that employs me.

    So, I pay to keep Mr Hester in a job and he charges me more to keep him in a job.

    “It’s a mad, mad world my masters…”

  8. I think Mr Hester misses the point that a number of banks are only still in existence and with a prospect of rebuilding their share prices because the public purse bailed them out.
    Has he spoken to any Northern Rock shareholders for their take on his comments?

  9. Anonymous | 13 Jul 2010 2:55 pm

    As unpleasant as it may seem to you, the people who pay dividends and earn bonuses while increasing bank charges would not have jobs if it were not for the public purse.

    I deduce that you are a banker because people from any other background could grasp these basic facts of life.

  10. Crazy gang IFA member 13th July 2010 at 9:57 pm

    I dont like banks and am unsure what purpose they actually serve in today’s marketplace apart from getting rich borrowing from the bank of England at 0.5% and then making a wacking great profit when they lend to all of us. Surely there must be a simpler and cheaper way to borrow money. Of course they will pass these costs onto all of us, god forbid the shareholder (of which the main board directors are the some of the largest holders of shares!!) should have to accept the fact that the old gravy train days are over. You may say that banks form a significant part of a lot of our investors portfolios but it is s bit like owning a student let and then finding your own child has got to pay the inflated rents in some far away town, in someone elses student let ie, we are all just playing with our own money anyway and the people who suffer are always the ones who have most to lose, the ordinary folk.

  11. Kevin Grannersby 15th July 2010 at 9:56 am

    @Crazy gang IFA member – you actually believe that banks get their funding from the Bank of England? And you work in financial services? Heaven help us all….

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