In a speech being given today at the Westminster Business Forum in London, Bailey will say the free banking customers believe they are receiving does not exist as they are actually paying for banking services “in ways that are hard to link to the costs of the products we receive”. He will warn this can distort the supply of banking services.
He will say: “The dangers include that the pricing of banking to consumers varies too much depending on the services they use. I also worry that the banks may not properly understand the costs of products and services they supply. And I worry also that this unclear picture may have encouraged the misselling of products that is now causing so much trouble.
Barclays, Lloyds, Royal Bank of Scotland and HSBC are currently paying around £9bn in compensation for misselling payment protection insurance.
Bailey will add: “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.
“I don’t think we will have a retail banking industry that is properly serving the interests of the public until we tackle the dangerous myth of free in-credit banking.”
Bailey believes attempts to tackle the issue of free banking may require “intervention in the public interest”.
Bailey is to become head of the Prudential Business Unit, the part of the FSA now mirroring the future PRA once Hector Sants leave his position as chief executive of the regulator next month.