Free banking is a myth, says Bank of England executive director

Andrew Bailey, an executive director at the Bank of England who is about to become chief executive of the new Prudential Regulatory Authority (PRA), has described free banking as a “myth” that “encouraged the mis-selling” of products such as payment protection insurance.

The PRA is one of the organisations that will replace the Financial Services Authority. It will be part of the Bank of England and will regulate banks, building societies and insurance companies.

 Mr Bailey told the Westminster Business Forum: “Reform of retail banking in this country cannot move ahead unless we tackle the issue of free in-credit banking, and have a much better sense of what we are paying for and how we are paying.”

He said customers may think their account is free, but it is actually paid for by, for example, the extremely low interest rate that many banks offer on current accounts.

Angela Knight, the outgoing Chief Executive of the British Bankers’ Association described the speech as “a significant contribution to an important debate”.  She added: “We will be discussing his thinking with him and with our customers and consider the options. We are determined to be both open, transparent and fair to all."

For the full text of Mr Bailey’s speech, go to: http://www.bankofengland.co.uk/publications/Documents/speeches/2012/speech574.pdf