In particular, all three banks continue to stash away huge sums to cover the cost of previous PPI-related misconduct. Lloyds -- by far the industry's worst culprit -- was forced to set aside a further £2.1bn between October and December, taking total provisions to date to a colossal £16bn.
And this problem isn't anticipated to go away any time soon. Laurie Mayers, associate managing director at Moody's, noted this week that "conduct litigation charges for the UK's five largest banks increased significantly in 2015 by approximately 40%, to £15bn."
Mayers added that "this significant increase in 2015, despite some decline in 2013 and 2014, demonstrates that these charges continue to present considerable tail risk." Indeed, Moody's expects claims to accelerate ahead of a possible 2018 deadline.
It's a penalty!
However, these are not the only fears shaking investor confidence in the banking sector.
Barclays was forced to take the hatchet to its dividend policy this month in response to its various legal battles -- the bank's conduct in Asia, the US and South Africa are also under the microscope for a number of reasons.
And HSBC was forced to shell out $470m last month related to dodgy mortgage sales in the US. The bank still faces a litany of other cases, perhaps most infamously claims that its Swiss unit encouraged tax evasion.
Meanwhile, concerns over the banks' exposure to battered commodity markets was underlined by new, huge impairments over at HSBC. The bank's Commercial Banking division was forced to swallow an $800m provision in October-December thanks to sinking oil and gas prices, up more than 300% from the prior quarter.
On top of this, signs of worsening economic conditions across HSBC's critical Asian marketplaces is also prompting investors to sit on their hands.
Back at Barclays, questions remain over the bank's direction under the stewardship of new CEO Jes Staley. The company has recently put its African banking division on the block; is slowly revving its Investment Bank back into action; and is splitting itself into two new divisions (Barclays UK and Barclays Corporate and International).
Lloyds takes it
Still, it could be argued that the risks facing the banks are more than baked-in at current share prices. Barclays and HSBC carry prospective P/E ratings of 9.9 times and 10.1 times, respectively, either side of the bargain-basement watermark of 10 times.
But while I believe both firms remain strong long-term picks, as global banking demand surges and massive cost-cutting exercises kick in, I believe Lloyds is the better banking pick at the present time.
Sure, the company's focus on the British High Street doesn't provide it with the prospect of hot earnings growth like HSBC and Barclays. But Lloyds' lower risk profile makes it less susceptible to near-term earnings volatility.
And like Barclays and HSBC, Lloyds deals on a mega-low P/E figure, at just 9.1 times for 2016. And the bank's 13% CET1 capital ratio also tops those of its rivals, putting its projected 4.3p per share dividend -- yielding a stonking 6.1% -- on safer ground than its peers.
But whether or not you share my take on Lloyds et al, I strongly recommend you check out thistotally exclusive report that identifies even more FTSE 100 superstars waiting to deliver spectacular returns.
Our 5 Dividend Winners To Retire On wealth report highlights a selection of incredible stocks with an excellent record of providing juicy shareholder returns.
Among our picks are top retail, pharmaceutical and utilities plays that we're convinced should continue to provide red-hot dividends.
Click here to download the report. It's 100% free and comes with no further obligation.
Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Barclays and HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.