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Knight charges into bank row

April 18, 2007 on 5:13 am | In Money |

Intervention by the competition authorities into fees charged by banks will have long-term consequences, the incoming head of the banking industry’s lobby group has predicted.

As the high street banks prepare to report record profits, rumours are mounting that they may impose fees for current accounts following a series of investigations by the Office of Fair Trading and the Competition Commission.

Angela Knight, chief executive designate of the British Bankers’ Association, is reluctant to predict the end of free banking. But, she said: “If you have a model which a third party [such as a regulator] seeks to change part of, there will be consequences that follow. It doesn’t mean that a change in one area will result in the end of free banking but there is no consequence-free result.”

The competition authorities have already capped default charges on credit cards at 12, potentially stripping 300m of income from the industry. The Office of Fair Trading, which criticised the voluntary banking code on Friday, is now turning its attention to overdraft charges and is scheduled to make an announcement next month. The industry is braced for another cap on fees levied on overdrafts — which some sources believe could drive banks to introduce fees for current accounts and even cash machines.

Ms Knight admits that she recently incurred an overdraft charge but also admits “they are easy to avoid”. “Arrange an overdraft just in case,” she said.

But the regular intervention of regulators is clearly an irritation. “There is a responsibility in all this,” she said, “for the industry to explain itself better and there is a responsibility from the regulators to actually not inadvertently rev up a situation out of proportion. There are ways and statements [by] which you can keep things in balance and there are ways things can be construed with scarier consequences.”

The media, she said, also has a role to play in fair reporting. But, she added, “the regulators have a responsibility as well to keep the temperature of the debate such that good debate can be held and held widely.”

Ms Knight, a former Conservative MP who lost her seat in the elections that swept Labour to power in 1997, is also ready to defend bank profits — which are expected to top 40bn for 2006. “It’s a very great pity that the fact they are profitable is something that can be condemned,” she said.

She reels off statistics to prove the importance of banks’ profits to the system. About a quarter of all corporation tax is paid by banks, which also pay dividends to investors. By her calculation, “banks are the biggest single filler of the pension fund deficits [of funds invested in banks].” To top it all, the financial services industry creates jobs for more than 5 million people.

“We should say thank goodness they are as good as they are,” said Ms Knight.

One of her first tasks after arriving at the BBA after eight years as chief executive of the Association of Private Client Investment Managers and Stockbrokers late last year was to attend meetings with the wider industry about individual voluntary arrangements. IVAs, which allow debtors to write off part of their debts, have been blamed by the banks for running up their bad debt provisions and for their advertising claims and marketing techniques.

By Easter, the industry hopes to come up with a standard for these products although the guidelines may be delayed a little by the illness of a BBA employee crucial to the work. Even so, their publication around April — when Ms Knight officially becomes chief executive — may finally lead to some applause for the industry, especially if the banks can prove that their customers will get fairer treatment.