Bank bosses are meeting with a UK regulator on Thursday to talk about accusations of “profiteering” from savers. But they know there are higher stakes as Britain confronts a generational leap in living costs and a looming election.
(Bloomberg) — Bank bosses are meeting with a UK regulator on Thursday to talk about accusations of “profiteering” from savers. But they know there are higher stakes as Britain confronts a generational leap in living costs and a looming election.
Sheldon Mills, the Financial Conduct Authority’s executive director for consumers and competition, will grill executives about why their rates for savers languish well below the Bank of England’s 5% base rate. Mills could suggest making it easier for customers to move to better offers, and actively encouraging people to switch.
The banks are likely to agree in the hope of warding off a wider debate about their role in society, according to several people familiar with the matter, who asked not to be named discussing the meeting. Questions about competition in banking could re-emerge, as could the threat of windfall taxes as banks prepare to post half-year earnings that are set to be flattered by interest rates rising more for borrowers than savers.
“The FCA has a competition duty. No doubt they are looking carefully at this in the context of recent allegations,” said Andrew Tyrie, a member of the House of Lords who was previously chairman of the Treasury Select Committee and the Competition and Markets Authority. “Sitting behind them, the CMA should also be watching carefully.”
Three years after the banks were praised for supporting customers through the Covid-19 pandemic, the industry is now on the receiving end of angry rhetoric from politicians, who are preparing for a likely general election next year as voters continue to struggle with inflation. Supermarkets have faced similar criticism.
“With interest rates on the rise and our constituents feeling squeezed by rising prices, it is only right that the UK’s biggest banks step up their measly easy access savings rates. The time for action is now,” said Harriett Baldwin, chair of the Treasury Select Committee, this week.
Angela Eagle, another member of the committee, went further, accusing retail banks of “squeezing higher profits from their loyal savings customers. This blatant profiteering has been shocking.”
The committee has written to the UK’s four biggest banks and the FCA challenging them about savings rates. The FCA has said it will report back on whether it thinks the savings market is functioning by the end of this month.
Consumer Duty
On Thursday, nine lenders including dominant players Lloyds Banking Group Plc, NatWest Group Plc, Barclays Plc and HSBC Holdings Plc as well as smaller firms such as TSB and Co-operative Bank will attend the meeting with the FCA at its headquarters in Stratford, east London.
One area of discussion will be the new consumer duty, which comes into force from the end of July. Financial firms must demonstrate that they deliver fair value for customers — an argument that may be difficult with savings rates languishing at about 2.5% while mortgage customers face an average 6.5% rate for a two year fixed-rate loan, according to data from Moneyfacts.
For lenders, the Bank of England’s 13 successive rises in interest rates represent the chance to get back to profit margins last seen before the 2008 financial crisis, when rates were slashed to near zero. Since then, the earnings they can generate from the difference between savings and loans has severely shrunk — in part because mortgage rates are largely dictated by the market cost of funding.
The banks agreed to sign the Treasury’s mortgage charter to support customers last month, though the pledges barely go further than help they were already offering.
On savings, potential changes could include the end of banks offering their best savings rates only to new customers who open a current account. Another option could be stoking demand for fixed rate products, which offer higher interest in return for locking away cash. This market shrank dramatically in the era of ultra-low rates.
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