This idea is not brand new; in 2011 (reference P/11/897) the European Commission declared it would be desirable to secure easy access to banking services in every EU country. The fact which let me calm then was that this communication had a form of “recommendation” and it included a term “reasonable price”. The same as thousands of useless bureaucratic documents EU offices generate every day…
Unfortunately, things were going to be changed.
As Süddeutsche Zeitung informs, till June 2013 Barnier wants to prepare a set of legislation, which will claim a bank account, till today a private good provided on private market by private subjects, for free. As Mr. Barnier “explained”, a bank account is not good, it is social right; it is a necessity for housing contracts, for contracts with mobile operators or for on-line shopping… “But it costs money and that is a problem – not everyone can afford it,” though Michel Barnier and made the worst thing he could – he wants to “help” us.
Why? Let’s go through few arguments.
Firstly, it is obvious we can find out goods useful, i.e. important for millions of people. So a bank account is. And, yes, as every good provided by supplier and purchased by customer on a market, a bank account brings some utility to her/his owner (customer), it has some value then, and so it has some price. It shouldn’t surprise someone who deals with analyzing markets and services for a living in the European Commission, Mr. Barnier! A price set up on the financial market means that there is a voluntary contract between a bank and a customer. The fact you use your bank account for some particular purpose, even that you cannot secure it without banking account, is not reason for distortion of free market principles. It is rather a vindication for market price!!!
The logic is as simple as hell. You need to play ice-hockey? You have to buy ice-skates. You need to get to work by tram? You have to buy a ticket. You want to drive a car? You have to get a driving license and, of course, to buy a car. You need to pay for your apartment rental on-line? You have to buy banking account with internet banking… For every good – ice skates, tram ticket, driving license, car or banking account, you are supposed to pay the price. People are willing to pay for goods because goods purchased bring them back satisfaction, happiness, utility. It is not throwing money from a window; it is mutually-beneficial transaction, I pay money and my wants will be satisfied. Well, every rational decision-maker would love to purchase her/his good for a lower price, even to get it for free. But it does not mean that politicians should try to handle that. Why?
If we had accepted Barnier’s logic, there would have been no difference between bank account on one hand, and transport, clothes, PC, mobile phone, internet, or food on the other hand. We need each of these goods for securing our living, for capability to be employed or for ability to member in our society. Does it mean we should have these goods for free? Of course not! Such system is called a communism and one can honestly say it is not the aim which European Union should target on. If yes, without me, please.
For next, costs related to ownership of bank account are not at the level which could ruin one’s wallet. I cannot imagine any human being who thinks about renting an apartment, on-line shopping or purchasing of cell phone and contract with mobile operator but have no money for bank account. In the Czech Republic the average cost of banking account (basic transaction included) is 178 CZK (about 7 EUR) per month (a median is lower) which corresponds to average hourly (!) wage. Purchasing power differs among countries, but prices of banking accounts do the same. That is economics.
Last but not least, it is naive to think that claiming free bank account will ensure more money in clients’ pockets. An economic explanation for this state is called “price burden shift” – every regulation, especially regulation of price by price ceiling such as free banking account claim, brings some costs to regulated subjects (banks). But as any rational decision-maker does not want to bear the costs and to lower its profit, there is strong motivation to shift the costs to other subjects (clients). In banking sector, this process can be implied variously – by decrease of deposit interest rate, by increase of loans and mortgages interest rate, by additional fees and commissions, or by combination of that. The impact on client’s pocket can be even worse – only the bank knows real costs of its internal processes and so bank can benefit from this information asymmetry and marked changes in pricing policy as “justifiable”, “necessary for ensuring security”, etc.
To conclude: I am not lobbying for financial sector nor advocating banking fees, but there is only one “medicine” for characters as high prices, poor-quality services or monopolies taking advantages. This solution is called COMPETITION, not regulation! Regulation of market where competition occurs is nonsensical and it will bring no real benefits to customers. Never. When unsatisfied customers can leave the supplier with high prices and/or poor quality service, they make a pressure on quick improvements. So the only and best thing a legislator can do for clients is to set up transparent rules and dismantle barriers for entering markets. Competition among suppliers combined with free to choose principle creates sufficient conditions for satisfied customers. If you secure this, Mr. Bernier, you will meet the goal of your job.
As Albert Einstein said: “Make everything as simple as possible. But not simpler.”