The U.K. government has proposed that banks be required to provide checking accounts for every citizen. Under the plan introduced by British Chancellor of the Exchequer Alistair Darling, banks would be legally compelled to open an account for anyone able to prove their identity.
In effect, banks would be subject to a universal service obligation, similar to the law under which public utilities operate. The intentis to reduce the level of financial exclusion in the U.K., where a substantial minority of consumers-more than half of whom are in the poorest 20 percent of the population-have no access to banking services.Unbanked consumers lack the ability to deposit wages, leading them to use expensive alternatives such as check-cashing services. The government sees helping these consumers as instrumental in its efforts to reduce social inequality.
However, the plan is unlikely to be welcomed by the banks, as it creates an added burden for them. These accounts would almost certainly be unprofitable; the new customers aren't expected to maintain large deposit balances, and the opportunities for cross-selling would be extremely limited.
The chancellor's plan highlights the degree to which the balance of power has shifted from the banking industry to the government since the financial crisis erupted. But there is considerable uncertainty over the outcome of the U.K. general election, widely expected to be held on May 6, so doubt remains as to whether the proposal might become law.
If it does, one possible, if unintended, consequence could be to hasten the move away from free checking, which is still the norm in the U.K., to a model where fees are charged as banks seek to preserve profits.
It is doubtful whether a similar scheme would be introduced in the U.S. There is less of an imperative because the cash economy is more significant and American consumers tend to be less dependent on banks for financial services than those in the U.K. Furthermore, U.S. policymakers have been preoccupied with health care and other key legislation. The idea of bank accounts for all is unlikely to figure highly on their list of priorities.