The end of free banking could be an opportunity for other financial institutions

Building societies and credit unions stand to benefit if we move towards a paid-for model.

While many of us start to recover from the shock revelation that charge-free bank accounts are a myth, and that banks have been incentivised to mis-sell other financial products for their loss-leaders, some financial institutions like building societies and credit unions are quietly looking forward to the end of free banking.

After the scandals that have hit banks over PPI misselling and the £9bn set aside to recompensate those who were its victims, bankers and regulators have shared a rare platform in agreeing that an end to free banking could prevent similar future episodes.

The argument goes that banks were only scheming because fees aren't being levelled towards customers for their accounts, and so inevitably it became necessary to cross-subsidise from one profitable bit of the operation to in-credit personal current accounts free of charge.

Indeed as the newly-appointed chairman of Barclays, Sir David Walker, has said: "Because banks are not charging, it drives them inexorably into this sort of position”.

The issue has been raised in parliament and will be raised again at the Parliamentary Commission on Banking Standards where bankers have already submitted evidence, highlighting free banking as one of the things that led to bad behaviour.

One of the practical problems that awaits this (some call it an inevitability) is if one bank makes the leap and starts charging, the likelihood is that their customers will run and go elsewhere. To be a renegade over this can promise a huge money loss, which undermines the point in doing it in the first place - some risks just don't come naturally to banks.

Of course the other problem is that if it became a trend among banks, nobody can promise against an outbreak in customer dissatisfaction. One of the concerns being raised is that for unethical banking, the general public is being asked to subsidise another income stream for Barclays, HSBC, RBS and Lloyds.

For Phillip Inman, economics correspondant of the Guardian and the Observer, this is like a pickpocket saying he was forced to steal wallets because he was denied other sources of income. The only way of stopping a naughty banker from selling you stuff you don't need, in other words, is by giving him money. One can understand the discontent at this twisted logic.

But from another angle some institutions are seeing an opportunity. While one of the appealing planks of David Cameron's big society was the building up of smaller financial institutions, realists could see the many market entry barriers for types like building socieities and credit unions.

While the mainstream is already occupied by big banks, it was discussed at the KPMG’s 22nd annual Building Societies Database recently that: “almost half of the UK’s 47 financial mutuals had increased their profit in the year to April 2012, and that they would benefit further from the end of free banking.”

This isn't the first time I've heard something similar. Speaking to someone recently who works close to the credit union industry, who preferred to go unidentified, they told me that Barclays' talk of transparent charging structures has made the prospect of credit union modernisation very interesting indeed.

Credit unions have always had such a structure, and if paid-for accounts led to more competition among smaller players then the notion of a credit union membership rise increases the chance of them lending more money, particularly to those who are currently having difficulties remaining creditworthy or are thinking about going to a payday lender.

Trouble is the paid-for model comes with many problems. Too many, perhaps. People don't want to be charged a fee. Customers may end up kicking up a fuss about who their banks lend to on the grounds that their fees subsidise them, which when trying to maintain an image of middle-class respectability, may see the number of creditworthy people diminish.

Though most of us do want more competition and for places like credit unions to have more relevance in the market. Some very complex conversations and arguments are going to be had over this subject, that much is for sure, but it is interesting to note that advocates for an end to free banking are not only the usual suspects alone.

A high street bank. Photograph: Getty Images

Carl Packman is a writer, researcher and blogger. He is the author of the forthcoming book Loan Sharks to be released by Searching Finance. He has previously published in the Guardian, Tribune Magazine, The Philosopher's Magazine and the International Journal for Žižek Studies.

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Labour tensions boil over at fractious MPs' meeting

Corbyn supporters and critics clash over fiscal charter U-turn and new group Momentum. 

"A total fucking shambles". That was the verdict of the usually emollient Ben Bradshaw as he left tonight's Parliamentary Labour Party meeting. His words were echoed by MPs from all wings of the party. "I've never seen anything like it," one shadow minister told me. In commitee room 14 of the House of Commons, tensions within the party - over the U-turn on George Osborne's fiscal charter and new Corbynite group Momentum - erupted. 

After a short speech by Jeremy Corbyn, shadow chancellor John McDonnell sought to explain his decision to oppose Osborne's fiscal charter (having supported it just two weeks ago). He cited the change in global economic conditions and the refusal to allow Labour to table an amendment. McDonnell also vowed to assist colleagues in Scotland in challenging the SNP anti-austerity claims. But MPs were left unimpressed. "I don't think I've ever heard a weaker round of applause at the PLP than the one John McDonnell just got," one told me. MPs believe that McDonnell's U-turn was due to his failure to realise that the fiscal charter mandated an absolute budget surplus (leaving no room to borrow to invest), rather than merely a current budget surplus. "A huge joke" was how a furious John Mann described it. He and others were outraged by the lack of consultation over the move. "At 1:45pm he [McDonnell] said he was considering our position and would consult with the PLP and the shadow cabinet," one MP told me. "Then he announces it before 6pm PLP and tomorow's shadow cabinet." 

When former shadow cabinet minister Mary Creagh asked Corbyn about the new group Momentum, which some fear could be used as a vehicle to deselect critical MPs (receiving what was described as a weak response), Richard Burgon, one of the body's directors, offered a lengthy defence and was, one MP said, "just humiliated". He added: "It looked at one point like they weren't even going to let him finish. As the fractious exchanges were overheard by journalists outside, Emily Thornberry appealed to colleagues to stop texting hacks and keep their voices down (within earshot of all). 

After a calmer conference than most expected, tonight's meeting was evidence of how great the tensions within Labour remain. Veteran MPs described it as the worst PLP gathering for 30 years. The fear for all MPs is that they have the potential to get even worse. 

George Eaton is political editor of the New Statesman.