The bosses of Britain's major banks have mounted a coruscating attack on their new regulator as they brace for the outcome of a new mis-selling probe that will result in another multi-billion pound compensation bill for the industry.
I have learned that the chief executives of some of the biggest high street lenders met for secret talks earlier this month, at which they shared profound concerns about the approach of Martin Wheatley, head of the new Financial Conduct Authority (FCA), to the mis-selling of interest rate-hedging products to small businesses.
The bank chiefs are understood to be concerned that Mr Wheatley will ignore recent victories for banks in mis-selling court cases and establish a compensation framework that could cost them as much as £10bn.
One bank executive said: "Repaying customers who have been mis-sold to is right and proper, but he [Mr Wheatley] seems to have an agenda to persecute the banks which goes way beyond that.
"It is getting to the point where investors will have to apply a 'Wheatley discount' to bank share prices."
The banking sector is braced for its latest bruising battle with Mr Wheatley to unfold this week when the Financial Services Authority (FSA) announces the results of a long-running pilot programme aimed at assessing the scale of redress owed to customers who were mis-sold interest rate swaps.
The FCA will be spun out of the FSA later this year.
I understand that Mr Wheatley has written in recent weeks to Royal Bank of Scotland (LSE: RBS.L - news) (and possibly other major banks) to warn them that recent court victories will not determine the structure of the complaints resolution regime that will be outlined on Thursday.
In December, RBS won a case in the High Court, which dismissed a claim by a Lancashire hotelier and his business partner who had alleged that the bank had mis-sold them an interest rate swap in May 2005 as a form of insurance against their existing loan liabilities.
The attack by the bank chiefs on Mr Wheatley's handling of the swaps and other conduct-related issues was made during private talks, and is unlikely to be repeated in public.
At least one bank chief executive, however, plans to write to George Osborne, the Chancellor, to warn that the "over-zealous" FCA approach risks grave consequences for the wider economy by eating further into banks' capital reserves.
The interest rate swaps scandal comes in the wake of the payment protection insurance debacle, which has already cost the major banks well over £10bn, and with little prospect of an end to the rise in compensation costs.
Swaps are products which provide a form of insurance in the event that (in this case) there was a steep rise in interest rates during the period covered by the product.
After the banking crisis hit, deep cuts to interest rates left thousands of customers facing bills far larger than the interest they were having to pay.
The banking industry has argued robustly that the fact that some customers were left facing large bills provides in itself no evidence that the swap products were mis-sold.
The banks are not the only stakeholders concerned about the outcome of the swaps probe.
The Financial Times quoted Mike Cherry, national policy chairman of the Federation of Small Businesses, calling for the range of businesses eligible to apply for compensation to be expanded.
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