The chairman of UK Financial Investments (UKFI) has warned that the Independent Commission on Banking's (ICB) reforms will reduce the value of the taxpayer's stakes in Lloyds and Royal Bank of Scotland (RBS) and delay their sale.
UKFI, which manages the state's holdings in Britain's banks, said it expected regulatory upheaval to continue for the next year.
"The cumulative effect of these changes will also impact negatively on the profitability of banks and therefore on the value of taxpayers' stakes in Lloyds Banking Group and RBS," Sir David Cooksey, the UKFI chairman, said in the group's annual report.
"Our ability to commence a share-sale programme of the Government's investments in Lloyds Banking Group and RBS has been impacted by the ongoing regulatory uncertainty," Sir David added.
In its April interim report, the ICB proposed ring-fencing retail banking from investment banking, which will have a big effect on RBS, and called for Lloyds to offload more branches than the 632 currently up for sale.
The commission will publish its final report on 12 September but there may be many months of extra uncertainty while the Government decides which proposals to accept and in what form. The Government owns 41 per cent of Lloyds and 83 per cent of RBS.
Sir David said UKFI's work will increasingly focus on preparing the Government's holdings for sales, as well as influencing governance and long-term strategies.
"We therefore await further clarity emerging in relation to the work of the ICB and the other regulatory changes... before we will be able to recommend the start of the process of selling the Government's shareholdings."