Should we end free banking?

Andrew Bailey, the Bank of England's Executive Director, spoke today on the future of UK banking, and argued that we nede to tackle "the dangerous myth of free in-credit banking".

Bailey told the Westminster Business Forum that:

Free in-credit banking in this country is a dangerous myth. It is a myth because nothing in life is free; rather, it means that we pay for our banking services in ways that are hard to link to the costs of the products we receive. This can distort the supply of banking services. The dangers include that the pricing of banking to consumers varies too much depending on the services they use. 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. 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.

Bailey is, of course, right that "free in-credit banking" is a myth. Almost every current account on the market pays zero, or close to zero, interest on accounts in credit, while inflation stands at 3.0 per cent. As a result, if you have a current account, you are in effect paying the bank close to 3 per cent of your deposit each year for the privilege.

It may even be, as Bailey suggests, a dangerous myth. After all, when the amount one is "paying" is contingent on the rate of inflation, it can be very difficult to keep track of what that actually is at any one point; in addition, many people don't have a full understanding of how inflation and interest rates combine, meaning that they do indeed think they are paying nothing at all for the service.

More importantly, the desire to extract extra profit from customers is a large part of what has led to the proliferation and inflation of bank charges. If a bank cannot charge customers a monthly fee for using their account, one way they get around it is by charging a fee for the sort of honest mistake which happens quite regularly; not only fees relating to overdrafts and rejected payments, but also returned letters, mistaken transfers, and suchlike.

But if his diagnosis is correct, I'm not so sure his cure is. While it is true that explicitly charging for accounts will allow banks to charge for their core services, rather than having to make most of their profit at the margin, it doesn't seem so clear that that will lead to better behaviour. Just this year, for instance, the Bank of America, which already charges fees for most services from its accounts such as withdrawals, transfers, and cheque cashing, attempted to introduce a $5 monthly fee for having a debit card.

Banks take advantage of the reluctance of customers to switch by nickle-and-diming on anything they can get away with. While they may find it easier to do so if the charges are less obvious, the last thing they need is state intervention to allow them to charge even more. Let  what little competition there it have the intended effect.

Andrew Bailey (R) presents a giant novelty £10 note to Sarah Darwin. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Does it matter that Westminster journalists have a WhatsApp group?

Well yes, a little.

“#WESTMINSTERBUBBLE JOURNOS CHAT ON #WHATSAPP. NOW THAT’S INTERESTING,” writes the alt-left site Skwawkbox.

Its story refers to the fact that Westminster journalists have a WhatsApp group chat. The site finds this sinister, suggesting the chat could be used to “swap info, co-ordinate stories and narratives”:

“It’s a technology that worries Home Secretary Amber Rudd, in case terrorists use it – but its use by the Establishment for 1984-style message co-ordination would worry many people just as much.”

Skwawkbox’s shock was mocked by lobby journalists and spinners:


Your mole, who has sniffed around the lobby in its day, also finds the suggestion of journalists using the app for terrorist-style collusion a little hard to swallow. Like every other industry, journos are using WhatsApp because it’s the latest easy technology to have group chats on – and it’s less risky than bitching and whining in a Twitter DM thread, or on email, which your employers can access.

But my fellow moles in the Skwawkbox burrow have hit on something, even if they’ve hyped it up with the language of conspiracy. There is a problem with the way lobby journalists of different publications decide what the top lines of stories are every day, having been to the same briefings, and had the same chats.

It’s not that there’s a secret shady agreement to take a particular line about a certain party or individual – it’s that working together in such an environment fosters groupthink. They ask questions of government and opposition spokespeople as a group, they dismiss their responses as a group, and they decide the real story as a group.

As your mole’s former colleague Rafael Behr wrote in 2012:

“At the end [of a briefing], the assembled hacks feel they have established some underlying truth about what really happened, which, in the arch idiom of the trade, is generally agreed to have been revealed in what wasn’t said.”

Plus, filing a different story to what all your fellow reporters at rival papers have written could get you in trouble with your editor. The columnist David Aaronovitch wrote a piece in 2002, entitled “The lobby system poisons political journalism”, arguing that rather than pursuing new stories, often this ends up with lobby journalists repeating the same line:

“They display a "rush to story", in which they create between them an orthodoxy about a story – which then becomes impossible to dislodge.”

This tendency for stories to become stifled even led to the Independent and others boycotting the lobby in the Eighties, he notes.

Of course, colleagues in all industries have always communicated for work, social and organisational reasons in some way, and using WhatsApp is no different. But while Skwawkbox’s “revelation” might seem laughable to insiders, most people don’t know how political journalism works behind-the-scenes. It touches on a truth about how Westminster journalists operate – even if it’s wrong about their motive.

I'm a mole, innit.