The new estimate for the cost of claims comes as shares in CYBG plunge as it warns of a higher bill.Read more
Personal finance correspondent, BBC News
The Co-operative Bank has joined Royal Bank of Scotland in warning about the potential hit from payment protection insurance payouts.
The Co-op says it has "received a substantially greater volume of enquiries and complaints than expected in the final days prior to the complaint deadline".
"The bank is currently assessing the impact of these increased volumes on the provision for both operational processing and redress costs. It will take several months to process the enquiries, over which time further information about the quality of the enquiries and complaints will be determined.
"Accordingly, an initial estimate of the impact will be provided in due course."
RBS said on Wednesday it would take a hit of up to £900m after the deluge of complaints sparked by the 29 August deadline for complaints.
Losses at Co-op Bank narrowed in the first half of the year but the firm warned that profitability was under strain due to intense competition in the mortgage market.
The bank posted a £39m loss for the period, down from the £40m it posted this time last year.
But it warned that both competition in the market for home loans and interest payments on its debt had squeezed profitability, which it said would face further pressure in the second half of the year.
Nationwide Building Society has won a £50m share of a fund aimed at boosting competition in the business banking sector.
The building society said the award will help boost its launch into business banking.
Joe Garner, chief executive of Nationwide, said: "While the money is a massive boost for our plan, we also aim to match every pound of the £50 million award with our own funding over a five-year plan."
The Co-operative Bank and Investec Bank also won smaller awards of £15m each in the second round of a £775m programme funded by Royal Bank of Scotland to increase competition in business lending.
The fund was launched as a condition of RBS's bailout at the height of the financial crisis.
KPMG has been fined £5m and "severely reprimanded" over its audit of The Co-operative Bank in 2009.
KPMG partner Andrew Walker has been fined £125,000 and has also been severely reprimanded.
In particular, the Financial Reporting Council (FRC) said the misconduct related to the valuations of loans acquired in the purchase of Britannia Building Society.
The FRC has also ordered that KPMG audits of credit firms for the next three years be subject to a second quality control review.
The Co-op Bank report sets out recommendations for enhancing the current supervisory regime and stress testing for the Bank of England and its supervisory arm, the Prudential Regulation Authority.
Sam Woods, the deputy governor and chief executive of the PRA, said: “We thank Mark Zelmer for his investigation of the supervision of the Co-op Bank in the period 2008-13. There are always valuable lessons to be learned in these circumstances, and we will make sure that we use the lessons from this case to strengthen our approach to prudential supervision.”
Back to the Co-op report.
Its author Mark Zelmer also looks at the period from the merger with Britanna to when the problems began to emerge about its potential losses and what the then regulator the Financial Services Authority did.
"Despite being cognisant of the weak performance of the corporate loan book, I consider that the FSA’s supervisors did not pay enough attention to the refinancing risk that existed in that book and, in line with standards at the time, the adequacy of loan loss provisions in the period following the merger".
It also looks at the period when the Co-op Bank was attempting to buy the TSB branches which were being out of Lloyds, known as project Verde.
"The FSA acted reasonably in not intervening to halt the bid. It acted early and clearly in setting out its concerns both orally and in writing on a number of occasions," he said.
The Treasury was supportive of that deal from both a public policy perspective and as a shareholder of Lloyds and there was a reasonably clear line in terms of the Treasury not encroaching on the FSA's remit, the report says.
A report by a former Canadian central banker into how the Co-operative Bank was regulated before before its near-collapse in 2013 has been published.
The report by Mark Zelmer looks at the way the Co-op was regulated at the time it merged with Britannia Building Society in 2009, during the financial crisis. The main regulator at the time was the Financial Services Authority.
"If the Co-op Bank had walked away from the merger, this would have been seen as a stark, public statement about the condition of Britannia," he said.
"The approach taken by the FSA towards the merger, including its insistence on narrowing the scope of the clauses in the transaction that limited the Co-op Bank’s ability to walk away from the transaction before it formally closed, left the Co-op Bank relatively defenceless," he writes.
Mr Zelmer also warns that "runs on deposits can happen fast in a digital world" and the risks of this may grow with the new competition rules introduced though so-called Open Banking.
His report is being published a year after the former chairman of the Co-op Bank, Paul Flowers, was banned from the financial services industry by the Financial Conduct Authority (FCA).