The report, prepared by the British-based World Development Movement, is especially critical of Midland Bank for assisting the sale of British Aerospace Hawk trainer jets to the Indonesian government, which has a poor human rights record. It also attacks Lloyds, Barclays and NatWest, as well as Midand, for their role in "boosting Saddam Hussein's military capacity" before the Gulf war, in finance export deals.
Barry Coates, WDM's director, said: "It is despicable that many high- street banks are using our money to finance arms deals to dictators and repressive regimes. Banks must adopt a more ethical policy on arms and invest in a safer future."
The WDM is pressing for a ethical code of conduct applicable to all banks, to reassure customers. Its report, From High Street to Battlefield: UK Banks and the Arms Trade, says the end of the Cold War combined with a greater Government push for exports has led to a "new open market for weapons". The increased use of the Government's Export Credit Guarantees Department (ECGD) to underpin sales of weapons has encouraged banks and arms companies because it has effectively removed their financial risk, the report says.
Apart from the Hawk jets deal, Midland is also criticised for helping the sale of a Rapier air defence system to the same country, and for deals involving Turkey and Iraq.
WDM, which started a campaign on banks financing arms deals two years ago, claims customers have closed accounts as a result and students have boycotted Lloyds and Midland.
A spokeswoman for Lloyds/ TSB said the bank would only consider lending if a deal had been approved by the Government, and that they would not knowingly do business with a customer who did not follow arms sales rules - a view echoed by Midland Bank.
Barclays Bank has also said that it only financed manufacturing customers, deals that had to be licensed by the Government. NatWest's policy has been that financing arms deals with "irresponsible" countries is "unacceptable", and that transactions are treated case by case. The attack on the banks comes as the Cooperative Bank, which is not named in the report, today publishes an "open letter" to its rivals on arms trade financing. The message from managing director Terry Thomas will be that the banks should adopt a common policy on such funding.
t In a surprising ruling, a watchdog has rejected complaints about an advertisement for the Cooperative Bank which implied that high-street banks had used customers' money to finance arms trading, writes Marianne Macdonald.
Midland Bank had objected to a national press campaign picturing a landmine, over copy which read: "Between 1981 and 1990, certain banks used hundreds of millions of pounds of their customers' money to finance the supply of arms to both Iran and Iraq."
In its complaint to the Advertising Standards Authority, Midland questioned the implication that UK high-street banks had financed the supply of landmines or other weapons.
But in its ruling published today, the ASA found that the campaign was justified after the Cooperative Bank supplied extracts from the Scott Report, minutes of evidence from the Trade and Industry Committee and letters between banks and arms dealers.