Cost of banking will rise says bank chiefRBS boss warns banks may need to push up charges

13 July 2010

Stephen Hester

RBS chief executive Stephen Hester has warned the City that banks will be forced to increase service charges in the wake of demands to reform the banking sector. 

While acknowledging that the City needed to address issues that contributed to the collapse of the financial sector, Mr Hester said that wholesale change would come at a price. The RBS boss told the British Bankers' Association annual international conference that the time had come for banks to review their position on 'serving the public interest', although this could result in customers paying more for services and products, including credit. 

He said: 'Banks can only serve society if they can sustain private capital and return to shareholders their cost of capital. So, safer banks inevitably go hand in hand with a lower supply of higher-priced banking services, but hopefully to a world which values saving versus borrowing a bit more than before as well.'

Bank failure cannot be stopped

Mr Hester, who gave evidence to the Which?-backed Future of Banking Commission, also revealed that reforms to the financial sector would not prevent banks from going bust in the future. He said: 'Even when we have vastly reduced the probability of bank failure, we need to deal with its eventuality. The direct impact of bank failure must be capable of smoother, faster and more certain handling.'

Mortgage funding 

Commenting on the banks' use of wholesale markets to fund mortgages, Stephen Hester said: 'Retail deposits are generally protected by insurance and it is very rare for retail deposits to fund investment banking activities directly. In fact, in the UK the opposite is true – wholesale markets are needed to fill the funding gap in retail banking from our national desire to borrow more than we save as households.'

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