Bank sector scandals have cost £53bn, reveals study

The scale of the payouts has hampered banks’ efforts to rebuild capital, restricted the amount they are able to lend and reduced dividends for investors, according to the survey.

Britain’s banks have been hit by scandals ranging from the manipulation of foreign exchange and benchmark interest rates to the mis-selling of loan insurance and complex interest-rate hedging products.

While lenders have struggled to return money to shareholders because of the charges, they have continued to pay billions of pounds in bonuses to staff, the study by the independent think-tank New City Agenda said.

“The profitability of UK retail banks has been imperilled by persistent misconduct,” said John McFall, a director of New City Agenda and former Treasury Committee chairman.

“This has made every citizen poorer through our pension funds and our ownership of the bailed out banks.”

The report said the mis-selling of payment protection insurance alone cost banks at least £37.3bn in what has been described as Britain’s costliest consumer scandal.

Lloyds Banking Group had to set aside £14bn to cover misconduct between 2010 and 2014, almost twice the amount of any other British lender, the report said.

Iain Clacher, an associate professor at Leeds University Business School, said: “The news that lawsuits and fines for misconduct are hampering banks is no surprise.

“However, since the financial crisis of 2008 banks have not done nearly enough to recapitalise their balance sheets, despite significant support from the state.

“These fines are right and proper, and the fact that shareholders are bearing the brunt is no bad thing as they benefited massively from the ‘profits’ generated from these scandals.

“The bigger issue, however, is that the bonus culture has yet to be reformed, and many of the beneficiaries of these scandals have not been adequately dealt with as no past bonuses have been reclaimed and there has been very little in the way of criminal prosecution.

“As a result, it is unlikely that the culture of banking is going to change any time soon.

“Moreover, looking at some of the headwinds for the global economy, it is likely that the banks will remain subsidised by the public for the foreseeable future and little will be done to make them get their house in order.”

Responding to the New City Agenda report, a British Bankers’ Association spokesman said: “Banks are determined that there will be no repeat of any of the bad practices that took place in the past. Big reforms designed to raise standards across the industry have been introduced in recent years.

“This includes a new regime that ensures individuals can be held to account for their actions.

“Staff are now rewarded for high levels of customer service and not sales volumes.

“A banking industry that sets the gold standard for integrity and accountability is good for customers and investors – as well as those working in it.”

Earlier this year, Andrew Bailey, the incoming head of Britain’s Financial Conduct Authority, promised to listen carefully to the industry as the regulatory tone towards banks softens.

Mr Bailey, a deputy governor at the Bank of England where he has headed its Prudential Regulation Authority (PRA) banking supervision department, said it was very important to have a “very open dialogue” with a broad range of representatives.

Chancellor George Osborne has called for a “new settlement” with banks, widely interpreted by the financial sector as a peace gesture after years of “banker bashing” in Britain following the 2007-09 financial crisis, when taxpayers had to bail out several lenders.