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PPI: Free banking limits competition among banks, says FSA chairman

The chairman of the Financial Services Authority (FSA) has claimed that free banking damages competition in the banking sector.

Speaking to the Treasury Select Committee (TSC), Lord Turner expressed his belief that new firms are unable to break into the market as banks make a loss on in-credit accounts.

He said: "The current account ... is essentially a loss-leader ... which banks provide in order to get hold of a relationship on which to sell other products. Because of that, there is a desire for them to sell products that are not appropriate.

"It is also the case [that] a loss-leader makes it more difficult for new entrants because they can't make a profit just out of the core product – they have to immediately be able to cross-sell as well."

In 1985, free banking was first introduced to the UK, with firms covering the cost of these operations through the funds generated from penalty fees.

Posted by Samantha Clarke

Samantha is a former banking assistant and has over ten years experience in retail banking ADNFCR-2776-ID-800257255-ADNFCR

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