Bank of England may end free in-credit banking
A director of the Bank of England has warned that official intervention could be considered to end the ‘dangerous myth of free in-credit banking’.
Andrew Bailey has already spoken out against free banking in relation to the mis-selling of financial products.
In a speech made available to media, he reiterated his concern, saying that it will be difficult for banking reforms to be put in place while free in-credit is creating an unclear picture of the true price of banking.
Commenting on the need for free in-credit banking to end, he said: “this is not something that will happen spontaneously.
“It is hard for a single bank to break out of the existing situation without appearing to raise the price of its service to customers even though it may not actually be raising the price as a whole.
“And, it is hard for the industry as a whole to break out without appearing to collude.
“So, it may require intervention in the public interest.”
Mr Bailey also suggested that interest rates would remain at the historic low level of 0.5 per cent for some time, and offered the reassurance that UK banks have contingency plans in place in case Greece leaves the eurozone.
However, he warned that the euro zone crisis is the biggest risk to UK financial stability.
Mr Bailey will help to lead the Prudential Regulation Authority, a new body within the Bank of England, which will oversee the banking industry.
The Prudential Regulation Authority is being created under the Financial Services Bill, as part of a new system of regulation designed to prevent another banking crisis.
The Financial Services Authority (FSA) will close and the Bank of England will have greater regulatory powers.
A Financial Conduct Authority will be created to take responsibility for consumer protection and is expected to introduce changes to prevent further mis-selling scandals.
It is expected to work with firms on the design and testing of financial products, intervening at an early stage if necessary.