A senior Bank of England policymaker has issued a scathing attack on two of the mainstays of high street banking, free-if-in-credit current accounts and teaser rates offered to entice new customers.
Martin Taylor, who sits on the Bank’s financial policy committee, also hit out at bankers’ pay, saying it was one of the issues that had led to a lack of public trust in the banking industry.
He said free banking – a concept introduced by Midland Bank 30 years ago – had led to the “mother of mis-selling” scandals as banks grappled to maintain the concept of free banking at a time when interest rates had plunged from a peak of 17%.
“The contortions the industry has put itself through to maintain this over-riding of the price mechanism have been very damaging, not only to the most vulnerable consumers who through penalty charges subsidise the better-off (they used to be known, revealingly, as ‘delinquents’), but also, I believe, to banking in general,” Taylor said in a speech in London.
Teaser rates, which were offered to lure people in before the 2007 crisis, had left mortgage customers “marooned on the standard variable rate and unable to refinance”.
“The habit of giving what are effectively disloyalty discounts has turned into a cynical and corrosive negative-sum game,” he said.
On the subject of bankers’ pay – he was chief executive of Barclays until 1998 – Taylor said it had always been high relative to other sectors. “It appears to be easier to fire people than to pay them less; it may even be easier to go out of business altogether.”
He said banking was in a tundra – a cold, treeless landscape. “We are in Siberia, where many people feel bankers belong, so perhaps there is hidden treasure under the permafrost.”
Almost nine years on from the financial crisis, Taylor said banks had been slow to redesign their business models and their behaviour. He was a member of the independent commission on banking – chaired by Sir John Vickers – which called for ringfences to be erected between high street banks and riskier investment banking operations.
“Bankers are human – I know, I used to be one – and generally do not relish being detested,” he said. “I’d settle for having public-spirit bankers,” he said, referring to David Rockefeller, who used to tell every recruit at Chase Manhattan that banking was all about character. “And it is. The rot set in, I suppose, when people decided it was about what they curiously called talent. A banker with character but moderate talent can go a long way; a talented banker without character is a public menace,” he said.
