Michel Barnier, European Commissioner responsible for internal market and services, has rejected all principles based on free market and freedom to choose, and showed he is a communist, or he is just joking with us. Or both. There is no other explanation for his proposal – every single European should have a right to own and to use a bank account for free.
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 – a fact which let me calm down. But it soon turned out that the declaration 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 change.
As Süddeutsche Zeitung informs, till June 2013 Barnier wants to prepare a set of legislation which will declare a bank account, till today a private good provided on private market by private subjects, free of charge. As Mr. Barnier “explained”, a bank account is not a good, it is a 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,” thought Michel Barnier and made the worst thing he could – he wanted to “help” us.
Why? Let’s go through a few arguments.
Firstly, it is obvious we can find goods that are useful, i.e. important to millions of people. So is a bank account. And, yes, like every good provided by the supplier and purchased by the customer on the market, a bank account brings some utility to their owner (the customer); it has some value then, and so it has a price. It shouldn’t surprise anyone who deals with analyzing markets and services in the European Commission for a living, Mr. Barnier! A price set up on the financial market means that there is a voluntary contract between the bank and the customer. The fact that you use your bank account for some particular purpose, even the fact that you cannot secure it without a banking account, is not a reason for distortion of free market principles. It is rather a vindication of market price!!!
The logic is as simple as that. 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, 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 a price. People are willing to pay for goods because goods purchased bring them satisfaction, happiness, utility. It is not money down the drain; it is a mutually-beneficial transaction. I pay money and my wants are satisfied. Well, every rational decision-maker would love to purchase their goods at a lower price, even to get them for free. But it does not mean that politicians should try to handle it. Why?
If we accepted Barnier’s logic, there wouldn’t be any difference between a bank account on one hand, and transport, clothes, PC, mobile phone, internet, or food on the other hand. We need each of these goods to secure our living; to have a chance to be employed, or to be a member of our society. Does it mean we should have these goods for free? Of course not! Such a system is called communism and one can honestly say it is not the aim which European Union should target. If yes, without me, please.
Next, the costs related to ownership of a bank account are not such that could ruin one’s wallet. I cannot imagine any human being who thinks about renting an apartment, on-line shopping or purchasing a cell phone and contract with mobile operator, but has no money for a bank account. In the Czech Republic the average cost of banking account (basic transaction included) is 178 CZK (about 7 EUR) per month (the median is lower), which corresponds to the average hourly (!) wage. Purchasing power differs among countries, so do the prices of banking accounts. That’s economics.
Last but not the east, it is naive to think that claiming a 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 a strong motivation to shift the costs to other subjects (clients). In the banking sector, this process can be applied variously – by decreasing the deposit interest rate, by increasing loans and mortgages interest rate, by additional fees and commissions, or by a combination of these ways. The impact on client’s pocket can be serious – only the bank knows the real costs of its internal processes, and so the bank can benefit from such information asymmetry and marked changes in pricing policy describing them 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” to such problems as high prices, poor-quality services or monopolies taking advantages. This solution is called COMPETITION, not regulation! Regulation of the market, where competition occurs, is nonsensical and it will bring no real benefits to customers. Never. When dissatisfied customers leave the supplier with high prices and/or poor quality service, they press for quick improvements. So, the only and the 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 freedom to choose creates sufficient conditions for satisfied customers. If you secure this, Mr. Bernier, you will meet the goal of your career.
As Albert Einstein said: “Make everything as simple as possible. But not simpler.”