£21.5bn set aside by banks to cover the cost of fines

Britain’s big four banks, Barclays, Lloyds Banking Group, HSBC and Royal Bank of Scotland had been forced to set aside £21.5bn to cover fines and customer redress in 2013, according to research published on Wednesday.

Calculated by the London School of Economics, the figure comes on top of nearly £25bn of conduct costs incurred by the four, since the banking crisis in 2008. The sums illustrate the scale of the problem the industry faces in trying to clean up its reputation.

The LSE professor who compiled the data, Roger McCormick said the totals would have to fall before banks could demonstrate that their relationship with regulators and customers were improving, adding, “What do these costs tell us? Could analysis of these costs be used by banks as part of their restoring trust agenda? Whatever they may say now about these being legal issues, they can’t keep saying that. These numbers need to be coming down over time.”

About £19bn of the £25bn was incurred in 2012 when Payment Protection Insurance provisions were first really in the media’s attention. The report concluded that this accounted for the bulk of the increase in 2013.

McCormick is working with Sir Richard Lambert, who is the former editor of the Financial Times, is aiming to help improve the reputation of these banks. He commented: “The banks’ conduct costs are harming their balance sheets, it’s not good for their wider economies. The money that is being spent on fines could be lent to business or could rebuild their capital so that they can serve their customers better.”

Lambert has published a consultation paper with 19 questions for the industry address, including one covering the need to ‘help to develop a common set of benchmarks against which individual banks can assess their performance against others in their peer group.

Posted on Mon 19 May 2014