Covid, the 2008 financial crash and Libor: the banking controversies before Nigel Farage's Coutts row

Banks are under the spotlight once again - and, to no one’s surprise, the focus is for all the wrong reasons.

Headlines everywhere are centred upon today’s dramatic resignation of long-time NatWest boss Dame Alison Rose, who ended her three-decade reign at the company after admitting to briefing the BBC with an inaccurate story about Nigel Farage’s bank account.

The scandal first began in early July when the broadcaster published an article suggesting the controversial former UKIP leader had his account closed because he fell below the threshold needed to have his finances managed by private bank Coutts, which is owned by NatWest.

Farage subsequently lashed out - accusing Coutts of being “dishonest” and saying he had obtained documents which proved that his bank account had been closed because his views “do not align with [the company’s] values.” This prompted a response from Rose, who apologised to Farage for the “deeply inappropriate comments” which appeared in papers for the Wealth Reputation Risk Committee - adding that they did not “reflect the view” of Coutts or NatWest.

But the turbulence did not end there, as just under a week later, Rose announced she would be stepping down as NatWest chief executive - remarking that she had made a “serious error in judgement” by having a conversation about Farage’s private banking arrangements with BBC business editor Simon Jack.

Rose denied revealing any “personal financial information” of Farage’s to Jack, and instead claimed she had inadvertently left the reporter with the impression Farage did not meet the wealth threshold needed for Coutts.

The dramatic series of events has placed further scrutiny on banks, with ministers calling on other bosses to learn from their competitor’s mistakes. Following Rose’s resignation, there have also been indications of a public loss of trust and confidence in the banks - with shares in NatWest falling by 3%, and other lenders seeing their shares hit too.

Elsewhere, expert Danni Hewson, head of financial analysis at AJ Bell, warned that this incident would have an impact on the whole of the UK’s banking sector, and not just on NatWest. She remarked: “The political and regulatory ramifications of this episode are likely to ripple out for months to come.”

But when it comes to public trust and confidence, banks are already dealing with other ramifications - from years long gone by. NationalWorld has taken a look at some of the key scandals from the last couple decades, as some begin to wonder how many more scandals the banking sector can take.

2008 financial crisis

Even fifteen years later, when someone talks about a banking failure or crisis - the 2008 financial crash is for many people the first thing that comes to mind. Essentially, the “credit card crunch” happened because banks loaned out too much too quickly, which they did by incautious and unwise lending.

Banks created huge sums of new money by making huge numbers of loans, and in just seven years, they doubled the amount of money and debt in the economy. Then, this money was used to push up house prices and create what many dubbed a ‘housing bubble’.

In the US, in particular, many banks lent out risky subprime mortgages, and when the housing bubble burst, many home owners defaulted, property prices tumbled and people rapidly went into negative equity.

Interest must be paid on all loans that banks make, and with the debt rising quicker than incomes, eventually some people become unable to keep up with repayments. So they stop repaying their loans, and banks found themselves in danger of going bankrupt.

This led to the collapse of Lehman Brothers in the US, and the run on Northern Rock and the Royal Bank of Scotland - where people withdrew all their money rapidly - and both had to be nationalised by the UK government to save them from going bankrupt.

In the aftermath, banks refused to lend and loan, meaning prices dropped and the economy tipped into recession. Many people lost their jobs, homes, and savings.

The Libor Scandal

When it was first revealed just over a decade ago, the Libor Scandal resulted in mass public outrage, a serious decline in trust, and some pretty major fines and repercussions for all the banks involved.

The Libor is a benchmark interest rate used to set the cost of borrowing for things like mortgages, credit cards, and student loans. To calculate it, a group of international banks would offer numbers on the interest rates they say they would pay to borrow from each other - and then work out an average from this.

However, it came to light in 2012 that some of the banks who participated in this process were artificially lowering or raising the Libor to benefit their own financial positions, such as by making their own borrowing costs appear lower than they actually were. This manipulation affected the cost of borrowing for millions of people and businesses around the world.

In the aftermath of the scandal, financial regulators took steps to improve the integrity of benchmark interest rates and increase transparency. However, for many people who had accounts with the banks involved - such as JPMorgan Chase, NatWest (which was called the Royal Bank of Scotland or RBS at the time), Barclays, and Deutsche Bank - the damage was already done.

Covid-19 loan refusals

Banks came under fire during the coronavirus pandemic for denying loans to companies which were struggling as a result of lockdown. The government had launched a scheme to ensure businesses had access to cash while the economy stalled, but many reported that their loan applications were being denied.

Speaking at the time, the then-Business Secretary Alok Sharma said: “It would be completely unacceptable if any banks were unfairly refusing funds to good businesses in financial difficulty.”

He drew upon the 2008 financial crisis, suggesting that the banks owed it to the country to step in here and help - as the government had done by bailing out banks when the economy crashed in the late 2000s.

“Just as the taxpayer stepped in to help the banks back in 2008, we will work with the banks to do everything they can to repay that favour and support the businesses and people of the United Kingdom in their time of need,” the Tory MP said.

High street closures

Something else which has impacted people’s everyday lives over the past couple years has been the closure of high street bank branches.

Physical centres had been closing for a while, but there was a big hit in July 2022 when a series of banks - including Barclays, Lloyds, HSBC, Bank of Scotland, Halifax and Nationwide - announced that more than 300 high street banks would be closed as part of a measure to cut costs.

They said more people were turning to online banking, meaning not enough customers were visiting banks in person. This, they argued, meant it was no longer worthwhile to keep many branches open.

However, banks received criticism for leaving people without access to face-to-face banking - with many complaining of there being too many automated systems online which leave customers unable to speak to a real person when they have a problem.

There was also significant concern for and among the elderly, who may not find online banking as simple to use as some of the younger generations.

Mortgage mayhem

At the same time as dealing with an unrelenting cost of living crisis, homeowners have also been hit by sky-high interest rates in recent months. Those with fixed-rate mortgages have been hit particularly hard, with the Bank of England admitting earlier this month that almost one million homeowners will see their monthly repayments rise by £500 by the end of 2026.

Rates started rising in May when worse-than-expected data revealed that inflation in the UK was not reducing as quickly as had been hoped. This technically isn’t the banks’ fault, as these kinds of decisions are made based on market dynamics. However, the Bank of England has faced criticism over some of the comments its key figures have made on the situation.

For example, the BoE’s chief economist Huw Pill told a podcast in May that people in the UK need “to accept they’re worse off” - “inflammatory” wording he later apologised for.

Meanwhile, Bank of England governor Andrew Bailey - who has a salary of almost £600,000 - has taken flak for telling workers not to push for pay rises. He argued that if salaries continue to increase, inflation will not fall - seemingly placing the onus on regular people.

Elsewhere, banks have had a much more positive experience with these changes. Santander and Lloyds recently revealed that their profits and net interest income - the difference between what banks pay out and receive in interest - have increased amidst rising interest rates.

This has prompted Labour MPs to call for a windfall tax on banks to curb profits amidst the cost of living crisis, as reported by NationalWorld’s Politics Editor Ralph Blackburn and Money Editor Henry Sandercock.