Battered banks deny the charges: The clearers insist they are not about to scrap free banking, but some changes are likely, writes Patrick Hosking
Wednesday 02 September 1992
Barclays Bank rushed out a statement that it had no present plans to change its charging structure. Lloyds Bank said the same, arguing that it would be madness 'while our popularity is at rock bottom'.
Accusations by Labour and Conservative MPs that the banks were 'colluding' and should be investigated by the Office of Fair Trading if they introduced higher charges had clearly hit home.
So had adverse media comment, including the Daily Mirror's view that 'banks should give up their high street locations and move into the back alleys with the grubby little money lenders they increasingly resemble'.
The source of all this opprobrium was a Sunday newspaper report that banks were reviewing their commitment to free banking for current account customers who stay in the black.
This was true, and has been on the cards for some time (the Independent on Sunday reported it last year). But, the banks insist, the aim would be to reduce the numerous cross-subsidies that riddle their complex tariff structures, not to increase the total fees they levy on all personal customers.
Some customers would pay more, but others would pay less. According to a Lloyds Bank spokeswoman, the idea would be to change the pattern of subsidy to reflect more accurately the cost of providing services.
'There is a groundswell of opinion that borrowing customers are overpaying now,' she said. However, she stressed that Lloyds had no immediate plans to change its charging structure.
Peter Radcliffe, banking director of Abbey National, said: 'We've got no plans to do away with free banking for people in credit, but we are starting to look more earnestly at the cross-subsidisation issue. Banks have a much better understanding of their costs nowadays. They realise they are operating some people's accounts at a loss.'
He points to the current account customer who uses a chequebook a month, has five monthly standing orders, withdraws cash from a rival bank's cash machine, yet keeps an average balance of only pounds 150.
That customer is costing his bank about pounds 100 a year, but his paltry balance yields only about pounds 12 a year in interest.
Such an account-holder was the bete noire cited by numerous defensive bankers yesterday. But do they exist in any quantity? No, says Jean Eaglesham, head of money policy at the Consumers' Association. To write so many cheques and maintain such a small balance without going overdrawn would require highly dextrous juggling.
A former banker with Barclays, Ms Eaglesham says there is a cross-subsidy - but it is the cross-subsidy the personal customer pays to corporate and third world customers, who have cost the British clearing banks billions.
Banks already earn a very high rate of return from personal banking, though this figure is difficult to isolate because none of the banks publicly breaks down the profits that come purely from personal banking.
For example, Lloyds Bank reported profits of just pounds 11m from retail banking in its last half-year. However, this was struck after pounds 266m of provisions - three-quarters of which were for bad loans to small firms.
The danger, consumer groups believe, is that banks would use any change in their charging structures as a smokescreen to lift their charges in aggregate.
Banks are under enormous pressure from shareholders to improve their poor profits performance. With their corporate loan books looking increasingly troublesome, they are putting their faith in personal customers as a reliable cash-cow.
Free banking and interest-paying current accounts were introduced in the mid to late 1980s, when interest rates were high. The accounts were profitable for the banks, which paid out interest of 2 or 3 per cent on the balances, but lent out the money at 15-20 per cent.
But as base rates have fallen, these huge margins have been squeezed. Banks now fear that a period of low inflation - and low base rates - will mean the accounts are no longer profitable.
Certainly personal customers can expect higher charges for specific services like duplicate statements and cheque-stopping. Banks may also try to crack down on customers with small balances. Halifax Building Society already charges Maxim account-holders if they have a credit balance of less than pounds 200.
But whether banks would dare to cut out free banking completely is open to doubt. New types of bank not burdened with the costly branch structures of the traditional clearers will put downward pressure on prices.
As one account-holder put it, 'Whenever my bank manager tries to charge me for anything, I threaten to move my account to First Direct (Midland's telephone banking service) and he goes all quiet.'
(Photograph and table omitted)
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