What Does a Bank Meltdown Cost? Not Much, Actually

(Bloomberg Opinion) -- It was a spectacular fiasco, made even worse by the clumsy way in which it was handled.

TSB Banking Group Plc’s attempt in April to transfer the records of its 5 million customers to a new IT system left about a million of them unable to access their accounts and vulnerable to fraud. At first, TSB said things were running smoothly. It makes you wonder what their idea of chaos is.

Unsurprisingly, there’s been a reckoning. On Friday, TSB and its Spanish parent Banco de Sabadell SA gave more details on how much the shambles cost: 203 million euros ($236 million.) Of that, 36 million euros went on waiving overdraft fees and boosting interest rates to stop customers defecting; 40 million euros for losses from fraud; 35 million euros on telling customers about the mess; and 92 million euros for actual customer redress. That last number seems strikingly low given what its customers were put through.

That the damage to TSB hasn’t been worse – both financially and in terms of lost clients – reflects two worrying things about Britain’s banking system: the lack of competition and the slowness of regulators in getting to grips with the risk from lenders’ creaking IT systems.

If your bank commits an act of self-harm, you don’t have a great many options. Four banks – Royal Bank of Scotland Group Plc, Barclays Plc, Lloyds Banking Group Plc and HSBC Holdings Plc – control about 70 percent of the market for checking accounts.

It’s striking that only 26,000 TSB customers took their business elsewhere, while 20,000 new accounts were opened in the period. There’s an old British joke that we change our spouses more often than our bank accounts. You can see the truth in that here. It’s still far too difficult for people in the U.K. to switch elsewhere.

Regulators, too, need to set clearer standards over what outages they’re prepared to tolerate and what they expect of bank management. No IT system works flawlessly, but in an age when banking is ever more digital, oversight needs to keep up. Executives must be held more accountable.

TSB used to be known as “the bank that likes to say yes.” If that remains the case, its customers should ask whether they deserve a little more compensation.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Edward Evans is a managing editor with Bloomberg Opinion. He is former managing editor for European finance at Bloomberg News.

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