The banks said on Monday they would drop a planned appeal against a court ruling which had made them liable to compensation claims over the mis-selling of payment protection insurance (PPI).
Analysts have said the case could cost banks around 8 billion pounds ($13.1 billion).
In the interest of providing certainty for their customers, the banks and the British Bankers' Association (BBA) have decided that they do not intend to appeal, the BBA said in a statement.
Barclays said it would make a 1 billion pound provision in the second quarter of 2011 to cover the cost of future redress and administration related to PPI mis-selling.
The hit to Barclays comes after rival Lloyds
Many people had already factored in this potential hit to Barclays last week after Lloyds announced its provision, said Canaccord Genuity analyst Cormac Leech, who has a buy rating on Barclays shares.
Barclays said it had agreed with the Financial Services Authority (FSA) regulator to contact customers and to assess the situation.
We have taken this decision because it is in the best interests of our customers, as well as for Barclays and its shareholders; creating certainty, particularly regarding past issues, is of benefit to all parties, Barclays Chief Executive Bob Diamond said in a statement.
We don't always get things right for our customers; when we get them wrong, we apologize and put them right, he added.
The payment protection insurance policies were typically taken out alongside a personal loan or mortgage to cover repayments if customers fell ill or lost their jobs.
But the policies were mis-sold, to self-employed or unemployed people who would not have been able to claim, and to consumers who did not realize they were taking out a policy, and last month a court ruled that the banks were at fault.
Royal Bank of Scotland
Bank of America
(Editing by Paul Hoskins and Chris Wickham)