Now that the cost of the reforms that the Vickers report recommends has been put at between £4 billion and £7 billion there comes the question of who is to pay for it.

Already the banks, who would far rather that the report be shown the intimate workings of Fred’s shredder, are warning that it is the retail customer who will foot the bill. That would mean higher mortgage and loan costs as well as no more free current accounts.

One of the main recommendations of the Independent Commission on Banking is for the retail arms of the banks to be ring-fenced off from the riskier style investment parts. That would prevent banks whisking deposited money out of the deposit accounts and into the casino hoping to make a profit and put the money back before anyone asked for it back. This would go a then long way to protecting the ordinary bank user from a bank failure.

It would also make it easier for the retail arm of the bank to be rescued, whilst letting the investment arm flounder, wither and die without risking ordinary customers’ cash.

So, without free access to a stash of cheap cash, the investment banks are going to find life a lot tougher and much less profitable.

Because of this the retail side won’t be able to lend the money to the investment side, make a profit and offer free banking to its clients with the profits. The result will be transaction charges for processing payments and dealing with deposits and withdrawals for example. Or so the argument goes.

But the banks still need depositors’ money to function. So, with the competition that the Vickers report is attempting to introduce via a 7 day account switching timeline, banks will be falling over themselves to offer the best combination of service, charges and rates. This is despite the low (6%) account turnover rate in the industry at present. Just check out the TV adverts by banks, if they could rely on customer inertia they would not be advertising would they?

There is also the fact that many accounts already carry some sort of monthly fee to pay for ‘services’ most people don’t actually use or are even aware of.

So it is a bit early to call the end of ‘free banking’ quite yet.

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