News Column

Big four banks hold back pounds 21.5bn for fines and customer complaints: LSE study shows sums to cover poor behaviour Amount comes on top of earlier pounds 25bn costs

May 14, 2014

Jill Treanor City editor



Britain's big four banks were forced to set aside pounds 21.5bn to cover fines and customer redress in 2013, according to research published today.

The amount, calculated by the London School of Economics, comes on top of nearly pounds 25bn of conduct costs incurred by the four - Barclays, HSBC, Lloyds Banking Group, and Royal Bank of Scotland - since the banking crisis in 2008.

The sums illustrate the scale of the problem the industry faces in trying to clean up its reputation.

Roger McCormick, the LSE professor who compiled the data, said the totals would have to fall before banks could demonstrate that their relationship with regulators and customers was improving.

"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 legacy issues, they can't keep saying that. These numbers need to be coming down over time," he said.

About pounds 19bn of the pounds 25bn was incurred in 2012, when, McCormick said, "payment protection insurance provision came home to roost". He said that accounted for the bulk of the increase in 2013.

McCormick is working with New City Agenda (NCA), a new thinktank co-chaired by the Labour peer Lord McFall, to look at ways of using the data to measure improvements in the culture of banks. The idea was raised by Sir Richard Lambert - a former head of the employers' body the CBI and a former editor of the Financial Times - as part of his consultation on creating a body to restore the industry's reputation.

Lambert, who is to speak at a reception for MPs today, was asked in September by the chief executives of the UK's large banks to come up with proposals for a body that could improve banking's reputation in the wake of scandals such as Libor rigging and payment protection insurance mis-selling.

"The banks' conduct costs are harming their balance sheets, it's not good for . . . the wider economy. 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," said McFall.

McFall, who was part of the parliamentary commission on banking standards set up following the furore caused by Barclays' pounds 290m fine for Libor rigging, said the NCA - which has the archbishop of Canterbury, Justin Welby, on its advisory board - and the LSE wanted to work together to help devise benchmarks for the industry.

Lambert, who is expected to update the City on his consultation next week, has published a consultation paper with 19 questions for the industry to 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".

McCormick is also hosting a conference at the LSE today to discuss ways of creating benchmarks. His conduct costs project at the LSE previously published data showing that 10 big banks, including Bank of America and UBS, and the four UK banks, ran up a bill of almost pounds 150bn in the five years after the 2008 crisis.



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Source: Guardian (UK)