Ministers told that breaking up banks would be 'catastrophic'

A decision by the Government to split up the biggest banks would have "catastrophic effects" on Britain's leading position in international banking and finance, a major global survey has found.

Despite the financial crisis, the British banks HSBC, Royal Bank of Scotland (RBS) and Barclays are among the world's largest 10 banks in terms of capital strength, while Lloyds came 12th, according to The Banker magazine. Its annual survey of the world's top 1,000 banks also revealed that Barclays was the fourth most profitable in 2009.

But the survey warned the coalition of the consequences of separating the UK's biggest banks into retail and investment divisions, suggesting that banks such as HSBC may relocate to Hong Kong.

The Future of Banking Commission, which is being chaired by the Tory MP David Davis and was set up in December, will deliver its recommendations to the Chancellor. It has gathered evidence from regulators, consumer groups and business leaders, including Mervyn King, the Governor of the Bank of England, and Lord Turner, the chairman of the Financial Services Authority.

Brian Caplen, the editor of The Banker, said: "If the coalition Government decides to break up banks it considers 'too big to fail', this could have catastrophic effects on the UK's leadership in the international financial industry. Britain would effectively be handing that role over to American, European and even Chinese banks."

He added: "After an extremely troublesome period for the banking sector British banks are now starting to recover. Taking the axe to a blue-chip British company like HSBC would be an act of vandalism."

From its rankings, Anglo Irish Bank suffered the worst loss with a deficit of $18.5bn in 2009, while RBS was in ninth place with a loss of $4.37bn. On a brighter note, Industrial Commercial Bank of China made the biggest pre-tax profit last year with $24.5bn. In fact, Chinese banks account for 84 of the top 1,000, contributing a quarter of the global profit pool. Goldman Sachs came third by posting $19.8bn and Barclays was fourth after delivering $18.9bn in 2009.

In terms of capital strength, Bank of America is top of the pile, while RBS is the world's fourth biggest, HSBC is fifth and Barclays is 10th.