The group is expected to announce this week that it will not appeal a High Court decision on the issue, paving the way for thousands of customers who were mis-sold the policies to receive compensation, according to the Sunday Telegraph newspaper.
The move, which is said to have been personally sanctioned by the group’s chief executive Bob Diamond, comes after Lloyds Banking Group last week surprised the City by announcing it was pulling out of any further legal action and setting aside £3.2bn to compensate customers.
The scale of the provision caused the taxpayer-backed bank to record a loss of £3.47bn for the first three months of the year, compared with a £721m profit last year.
The huge amount set aside also suggests that the final PPI compensation bill for the whole industry could be far higher than the £4.5bn that was originally estimated by the Financial Services Authority (FSA), with speculation that between £7bn and £8bn could eventually be paid out.
It is not known how much Barclays is likely to set aside for compensation, but it is thought to have had a PPI market share of around 15 per cent, compared with between 30 per cent and 40 per cent for Lloyds, suggesting a figure of around £1.5bn.
Lloyds’ decision came after the British Bankers’ Association, which was acting on behalf of the banking industry, lost its High Court challenge against new FSA rules on mis-selling PPI being applied retrospectively.
The BBA has until Tuesday to decide if it wants to appeal against the ruling, and officials are understood to have been meeting to discuss their next move.
But with Lloyds and Barclays pulling out of the action, the other banks involved – namely HSBC and Royal Bank of Scotland – are likely to come under pressure to admit defeat and pay compensation.
The FSA is reported to be in talks with the remaining banks to try to reach a settlement.
Barclays declined to comment on the report, sticking to its previous statement on the issue.