Former Stock Exchange chairman joins calls for end to free banking

A former chairman of the London Stock Exchange who authored an influential report on business banking for the Blair government has joined the growing chorus of voices calling for an end to free banking in the Britain.

Speaking to the Parliamentary Inquiry into Banking Standards, Don Cruickshank said free banking relied on subsidies from those who do not keep their accounts in credit.

He said this distorted the banking market and made it uncompetitive. Its end, he said, "would be good for the economy and almost all consumers".

Mr Cruickshank also claimed it would be easier for the one million or so people who do not have a bank account to get one.

"A competitive market cannot sustain cross subsidies from one market to another," he said.

Pat McFadden, a Labour member of the inquiry, pointed out it might be hard for members to recommend an end to a service that most Britons value as a result of the activities of traders who offered "bottles of Bollinger" for fixing Libor interest rates.

But Mr Cruickshank said that the inquiry might not have to make such a controversial proposal because the same effect could be achieved by other means.

His report into business banking for the Blair government recommended wholesale changes to the way the market functioned, but was effectively neutered by the Treasury under Gordon Brown.

He urged the inquiry not to allow any similar dilution of the report by Sir John Vickers' Independent Commission on Banking, which called for retail banking operations to be "ring-fenced" from more risky investment banking.

And he called for all regulatory functions – such as compiling Libor and overseeing pricing in commodities markets such as oil or gold – to be stripped from banks.

But Mr Cruickshank none the less urged MPs not to do anything that might damage London's position as one of the world's leading financial centres.