UK's free banking debate picks up pace

A top official at the Bank of England has added to speculation that the UK's banking system could be set to change after labelling free banking a 'dangerous myth'.

The BoE's executive director Andrew Bailey said that bank services were paid in hidden costs and that this could have 'encouraged the mis-selling of products' such as PPI.

It is speculated that Bailey is a strong contender to head the new Prudential Regulation Authority - the future chief regulator of the financial services industry - and his comments will add fire to the growing debate over whether to end the nearly 30 year old practice of free banking.

Speaking at the Westminster Business Forum, he said: "In short, I think that the reform of retail banking in this country cannot move ahead unless we tackle the issue of free in-credit banking, and have a much better sense of what we are paying for and how we are paying."

Britain is currently the only country in Europe to offer 'free-in-credit' current accounts. Rather than charging for the use of accounts - The Telegraph reports banks in Europe charge an average of £70 a year - countries like Britain, Australia and India instead recoup fees from charges on overdrafts, fines and the selling of other products.

Bailey added that any potential changes would be difficult for banks and their customers, and hard for the industry as a whole to implement without appearing to collude with each other.

"It may require intervention in the public interest, not least because it is a way to encourage greater competition," he added.

According to The Telegraph, the chairman of the Treasury Select Committee Andrew Tyrie has also added to the debate saying he wanted competition hurdles cleared aside in order for banks to legally tackle potential changes.

He is reported to have said: "The committee will be pressing the regulators to clear the obstacles to achieving this."

In other areas of his speech, Andrew Bailey warned that ongoing troubles within Europe pose the biggest risks to UK banks. He said that banks were preparing and planning for the contingency of countries, such as Greece, leaving the Euro.