View from City Road: Bancophobia back in the air

Bancophobia, or the popular hatred of banks and everything to do with them, is nothing new. It is as old as the hills. Over the past fortnight it has received a powerful shot in the arm as the main high street banks announced glittering half-yearly profits.

In most industries, this would be a cause for celebration and congratulation. Opinion is shifting fast, but profit has not yet become a dirty word once more. Not in banking. Banks are regarded like utilities, all much of a muchness providing an unavoidable service at an exorbitant price. Indeed a recent poll found that many people believe banking to be a nationalised industry.

One strand running through the criticism - that despite intense competition in many areas, UK high street banks remain at heart a cartel - has a nub of truth.

Take for instance Abbey National's provocative cut in its overdraft rate. One of the main gripes about banks is that they have kept overdraft rates in the 18-22 per cent region while other interest rates have halved. Surely Abbey would win customers eager to escape this cartel-led overpricing?

Not a bit of it. The banks reckoned - correctly - that the public perception of Abbey is still very much that of a building society, where you go to get a mortgage. For an overdraft, on the other hand, you go to a bank. Customer inertia also plays a large part, in that switching an overdraft usually involves the standing orders getting mixed in the process.

Sir Brian Pitman, Lloyds chief executive, did not disguise his satisfaction last week at the failure of Abbey to spark an overdraft price war. Such a war would destroy banking profits at a stroke, he warned. As the utility regulators are fast discovering, it is impossible to please customers and shareholders.