Co-op admits Flowers scandal has damaged reputation Mr Flowers, who stood down as chairman of the mutual bank in June, is on police bail after being questioned in relation to allegations of drug abuse. The bank, which now faces a string of inquires following the discovery of a £1.5bn capital shortfall in June, has been shaken by the fall-out from the Flowers affair. Although the bank did not specify the rate at which it is losing customers, it did say that such events, plus the introduction of seven day switching, and increased marketing spend from rivals may have contributed to an increase in "switching out of current accounts." The bank however emphasised that despite this, its retail deposit base remains "broadly stable" and its liquidity position is stable. It also admitted the slew of inquiries the bank faces - including a Treasury-initiated inquiry under the Financial Services Act 2012 - will distract management time and lead to costs not accounted for in its current business plan. Andrew Bailey, head of the Prudential Regulation Authority, on Thursday defended the regulators" role in the downfall of the Co-op, and the approval of Mr Flowers as chairman by the Financial Services Authority. "The process today is very different in terms of how it operates compared to how the process was at the time," he said at the publication of the Bank of England's Financial Stability Report. As you know the process...involves a lot more senior level involvement and so any appointment of a chairman of a major bank would involve senior people. That didn't happen in 2009 and that's a big difference," he continued.