Free banking a dangerous myth, says Bank official

Free banking is "a dangerous myth", according to Andrew Bailey, who is due to become the chief regulator of the financial services industry. He says customers may think their account is free, but the true costs are actually hidden. Those hidden costs would include the extremely low interest rate that many banks offer on current accounts. Mr Bailey - currently an executive director at the Bank of England - will take up his new role in July. "In short, I think that the 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," Mr Bailey said in a speech. Continue reading the main story “ Start Quote He's saying you can't leave it to the banks to clean-up their act in this way” Robert Peston Business editor Read more from Robert He said the situation also made it difficult for banks to understand the cost of the services they provide, which may have contributed to the mis-selling of financial products. Between them, Barclays, Lloyds, Royal Bank of Scotland and HSBC are currently paying about £9bn in compensation for mis-selling loan insurance. "I worry also that this unclear picture may have encouraged the mis-selling of products that is now causing so much trouble," Mr Bailey said. However, Mr Bailey says it is a difficult situation for banks because the first one to start charging for accounts could lose significant amounts of business. Speaking on the BBC's Today programme, BBC Business Editor Robert Peston said: "He's saying you can't leave it to the banks to clean-up their act in this way." "That's why he is saying - which I think is really pretty significant because this chap is replacing Hector Sands as the senior regulator in the City of London - that either the regulators or the government actually have to intervene to end the myth of free banking."