The payment protection insurance misselling scandal could cost banks £25bn, nearly double the £13bn they have currently set aside, according to research by The Times.
It suggests under a worse-case scenario, the costs of PPI could be as high as £40bn, if banks are forced to pay back every fee they generated over more than a decade.
The paper says it used the FSA’s monthly PPI payout figures and historic selling data to make its calculations.
In November, the Bank of England set out in its Financial Stability Report an additional £4bn to £10bn in costs, on top of existing provisions, to cover fines and customer compensation.
The Times says banks received 200,000 PPI refund requests a month last year. FSA figures show the amount paid back in October, the last month for which figures are available, was £534m, taking the total amount paid out to more than £7.5bn.
Page Russell chartered financial planner Tim Page says: “This reminds me of pulling off a plaster. At the moment the banks are doing it as slowly as possible and dragging out the pain. Would it not be better for them to rip it off in one go? The country needs the banks to start lending properly again, so the banks need to resolve liabilities like this as soon as possible.”