The system which allows some bank account customers to have a bank account for free is not competitive for banks, according to the Head of the Financial Services Authority (FSA - the financial regulator in the UK).
The statement is prompting further speculation that free in-credit bank accounts could become a thing of the past. Earlier this year the Bank of England’s Andrew Bailey commented that free banking is a "myth".
The Head of the FSA, Lord Turner, commented: "We need to recognise a central problem in UK retail banking – the impact on competition of free-if-in-credit banking."
He went on to say: "One important barrier to competitive entry into UK personal sector banking is obvious - the fact that the core product, the current account, is usually given away for free, sold at below cost of production.
"It is not a sound basis for a long-term trust-based relationship between a competitive banking system and its customers."
Lord Turner did not "rule [himself] out" of the competition to replace Sir Mervyn King as Governor of the Bank of England next year.
It's reported that Britain is one of only a few countries that offer free in-credit bank accounts and that banks generally recoup the cost of running these accounts by charging penalties on other customers who go over their overdraft limits, or bounce cheques, for example.
However, the threat of an end to free banking sparked criticism from Labour's shadow Treasury Minister, Chris Leslie, who commented: "The free in-credit deposit account needs to be defended; banks can generate significant profits from the money that they hold on our behalf."