Bank accounts for everyone

March 25th, 2010

An interesting and mostly unnoticed section of yesterday’s budget set a precedent by legally obliging banks to provide a basic bank account to everyone.

The move was one of several imposed by the chancellor supposed to improve the way banks do business after years of unprecedented criticism of the sector. The other changes included new targets for lending, with the threat of curbs on pay if they are not met.

According to the Treasury, there are 1.75 million adults in the UK without access to a bank account. The universal banking pledge is aimed at helping these people acquire the first requisite of financial stability.

The basic accounts in question allow customers to receive pension and benefit payments, provide a debit card and let people set up direct debits. However, they do not offer overdrafts and usually do not let people have cheque books.

The British Bankers’ Association has immediately responded by saying that the move is unnecessary because just about everyone can, in any case, have a bank account if they want one.

They seem to be missing the point though. A universal banking pledge is aimed at everyone. ‘Just about everyone’, by the very nature of the term, does not include everyone.

The Budget also said it would promote banking competition by speeding up the licensing process for new entrants. By reducing one of the main barriers to entry to the banking market, the government has ensured that it can more easily remain competitive which is better for the consumer.

The promise to move faster when deciding whether to grant a new banking licence was welcomed by the consumers’ organisation, Which? in a statement. “New entrants in the market offering genuinely competitive products will help bring about the culture change the industry so desperately needs.”

Ordinarily I am against excessive regulation of the markets but the UK banking sector is one area where market failure is clearly occurring and regulation is often the best way to fix it.

As the market becomes more competitive I would hope the need for regulation decreases, but until then the restrictive practices of the small number of very large high street banks in the UK will need constant vigilance.

This entry was posted on Thursday, March 25th, 2010 at 4:26 am and is filed under Personal Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Bank accounts for everyone

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