By Mark Kleinman, City Editor
Depositors with the Co-Operative's struggling banking arm have withdrawn hundreds of millions of pounds since the scale of its problems began to emerge in the spring, Sky News understands.
Corporate and retail customers of the Co-Op Bank have contributed to net withdrawals totalling more than £500m - out of an overall deposit base of almost £37bn at the end of 2012 - in recent months.
In a statement issued on Tuesday, a spokesman for the Co-Op's banking arm said: "Customer deposit retention levels remain within expected parameters and we continue to recruit new retail depositors, reflecting the underlying loyalty to our brand.
"The bank remains focused on delivering its capital plan."
News of the withdrawals - which amount to roughly 2% of the lender's deposit base, a smaller number than had been anticipated by banking experts - come as the Co-Op Group prepares a restructuring that will result in bondholders being forced to swallow significant losses on their investments.
Sources close to the Co-Op Bank and the Prudential Regulation Authority (PRA), the arm of the Bank of England which monitors risks in the financial system, said they were "comfortable" with the deposits profile of the business.
Co-Op depositors' savings are protected - as they are at all UK-regulated banks - up to an £85,000 limit by a Government guarantee.
A substantial proportion of the withdrawals at the Co-Op Bank are understood to have been made by so-called matrix funds, which are obliged under their terms of operation to pull their deposits from lenders which have their credit ratings downgraded to junk status.
Some local authorities are also understood to be among the depositors which have diverted their money elsewhere.
The Co-Op Bank's rating was downgraded five notches in May following its withdrawal from a deal to acquire 632 branches from Lloyds Banking Group.
A heavyweight new management team, led by former HSBC executive Niall Booker, was parachuted into the Co-Op's banking arm, and was tasked with devising a restructuring plan aimed at filling a £1.5bn capital hole identified by the PRA.
That plan involves the Co-Op Group injecting £1bn of new capital, while bondholders will swap their existing debt for new debt and a chunk of shares in a new company that will be listed on the London Stock Exchange.
Bondholders angered by the proposed terms have vowed to fight for a better deal, but would be likely to see their investments wiped out if they voted to block it in the autumn. Under that scenario, the PRA would probably take control of the Co-Op Bank under a new resolution programme.
The Times reported on Tuesday that hundreds of jobs were likely to be axed at the Co-Op Bank as part of the restructuring, with Mr Booker expected to focus on retail lending under a revised strategy.
The plans will be outlined in the prospectus for the bank's stock market listing later this year.
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