Andrew BaileyBanks must be told to stop offering free current accounts if Britain wants to stamp out mis-selling scandals, a senior regulator has said.

Andrew Bailey, executive director of the Bank of England, described free banking as a "myth" as it distorts the supply of banking services and encourages banks to push up fees elsewhere in their business.

Your guide to banking

He said regulatory intervention may be the only way to bring about change as it would be hard for a single bank to break ranks without losing business.

Your guide to banking



Millions of Britons still enjoy free banking and there is likely to be a furious reaction at any attempt to introduce fees for standard banking services, even though other European countries generally charge and it could mean lower costs for other services.

Mr Bailey said: "I don't think we will have a retail banking industry that is properly serving the interests of the public until we tackle the dangerous myth of free in-credit banking."

He believes the price of banking to consumers varies too much depending on the services they use.

In his speech to the Westminster Business Forum, Mr Bailey added: "I also worry that the banks may not properly understand the costs of products and services they supply. And I worry also that this unclear picture may have encouraged the mis-selling of products that is now causing so much trouble."

The banking industry is currently paying out billions of pounds in compensation to customers mis-sold payment protection insurance.

Mr Bailey added: "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.

"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, not least because it is a way to encourage greater competition."

10 things we hate about our banks

  • 1. PPI
    <p> More than 46,000 of 106,000 the complaints received by the FOS in the second half of last year related to payment protection insurance (PPI). And the organisation is expecting to receive a record 165,000 PPI complaints in 2012/2013.</p> <p> The huge numbers are due to the PPI mis-selling scandal that should now be a thing of the past, but there is no doubt that the insurance, which can add thousands to the cost of a loan, is highly unpopular!</p> <div> </div> <div> (Pictured: Martin Lewis after the PPI payout ruling)</div>
    1. PPI
  • 2. Mortgages
    <p> Complaints about mortgages jumped by 38% in the last six months of last year, the FOS figures show, compared to an increase of just 5% in investment-related complaints.</p> <p> Common gripes about mortgages include the exit penalties imposed should you want to sell up or change you mortgage before a fixed or discounted deal comes to an end, and the high arrangement fees charged by many lenders.</p> <div> </div>
    2. Mortgages
  • 3. Savings rates
    <p> While there is nothing in the data released by the FOS about the number of complaints relating to savings accounts, hard-pressed savers have been struggling with low interest rates for several years now.</p> <p> You can get up to 3.10% with Santander's easy-access eSaver account, but many older accounts are paying 1.00% or less and even this market-leading offer includes a 12-month bonus of 2.60% - meaning that the rate will plummet to just 0.50% after the first year.</p>
    3. Savings rates
  • 4. Borrowing rates
    <p> Banks are imposing the highest authorised overdraft interest rates since records began, with today's borrowers paying an average of 19.47%, according to the Bank of England.</p> <p> A typical Briton with an overdraft of &pound;1,000 is therefore forking out around &pound;200 in interest charges alone. Coupled with meagre returns on savings, it's enough to make your blood boil!</p>
    4. Borrowing rates
  • 5. Penalty charges
    <p style="text-align: left;"> While authorised overdrafts may seem expensive, going into the red without permission will cost you even more due to huge penalty fees.</p> <p style="text-align: left;"> Barclays, for example, charges &pound;8 (up to a maximum of &pound;40 a day) each time that there is not enough money in your account to cover a payment.</p>
    5. Penalty charges
  • 6. International transfer charges
    <p> If you need to send money abroad, the likelihood is that your bank will impose transfer charges - and offer you a poor rate of exchange. Someone transferring a five-figure sum could easily lose out by &pound;500 or more as a result.</p> <p> The good news, however, is that you can often get a better deal by using a currency specialist such as Moneycorp.</p>
    6. International transfer charges
  • 7. Waiting on the phone
    <p> <span style="text-align: left; ">Automated telephone banking systems, not to mention call centres in far-flung parts of the world, are one of our top gripes - especially as we often encounter them when we are already calling to report a problem.</span></p> <p> In the words of one disgruntled customer: &quot;What is it about telephone banking that turns me into Victor Meldrew? Well, maybe it's the fourteen security questions, maybe it's the range of products that they try to push or maybe it's because I'm forced to listen to jazz funk at full volume while my phone bill soars.</p> <div> </div> <div> &quot;Actually though, I think it's because the people I eventually speak to rarely seem able to solve the issue I'm calling about.&quot;</div>
    7. Waiting on the phone
  • 8. Being treated like a number
    <p> The days of a personal relationship with your bank manager are long gone - for the huge majority of us at least.</p> <p> When ethical Triodos Bank investigated recently why around 9 million Britons would not recommend their banks to a friend or relative, it found that almost a third felt they were not treated as individuals. Another 40%, meanwhile, were simply disappointed with the customer service they received.</p> <div> </div>
    8. Being treated like a number
  • 9. Long queues in branches
    <p> <span style="text-align: left; ">When you're in a rush, the last thing you want to do is wait in a long queue at your local branch.</span></p> <p> Researchers at consumer champion Which? recently found that most people get seen within 12 minutes, but you could have a much longer wait if you go in at a busy time. Frustrating stuff!</p> <div> </div>
    9. Long queues in branches
  • 10. Bankers' bonuses
    <p> The Triodos Bank research also indicated that the bonus culture that ensured the bank's high-flying employees received large salaries, even when it was making a loss at the taxpayer's expense, was hugely unpopular with consumers.</p> <p> About a quarter of those who would not recommend their current banks said this was the main reason why. And with RBS executives sharing a &pound;785 million bonus pool despite the bank, which is 82% publicly owned, making a loss of &pound;2 billion last year, it's not hard to see why.</p>
    10. Bankers' bonuses


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