Should basic bank accounts be subsidised?

Nationwide, the UK’s largest building society, has entered the fray about the recent announcement by RBS that basic bank account holders will only be able to use RBS ATMs. See http://www.itsafinancialworld.net/2011/08/one-more-step-towards-end-of-free.html  RBS followed Lloyds Banking Group who made a similar move for their basic account holders. Mark Renison, the Group Finance Director has said that  the company was “very concerned” by the move which will create an “unsustainable position” for cash-machine users.

Citizens Advice Scotland CEO has also commented  “This is an extremely worrying development. Basic bank accounts are used by people who have difficulty managing their money. That’s the whole point of these accounts. It is still only three years since the banks were bailed out of their own self-inflicted mess by taxpayers’ money.”

The concern is that some people with basic bank accounts will have to travel some distance to find an ATM that is operated by their bank. This is, of course true, particularly those living in more rural areas. What this does bring once more into focus is the role that the banks play in society. Are they commercial organisations or are they part of the social services fabric of this country?

With all the furore following the financial crisis there is both a call for the banks to be standalone profitable businesses with no call on government funding and to have greater clarity over the fees they charge for providing services, but also to be part of the social system subsidising the low-paid and providing bank services in unprofitable rural and urban areas. Clearly these two requirements are not fully compatible.

This then leads to the vocal extreme to call for all banks to be nationalised or mutualised, which of course makes no sense, but as the Independent Commission on Banking puts the final touches to the report coming out on September 12th 2011, it would be hoped that amongst the 350 plus pages they go some way to addressing what the role of retail banks should be in the future and how this is compatible with being commerciallly attractive businesses.

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