Barclays could find itself effectively forced to spin off Barclays Capital under Conservative proposals to shake up banking supervision, as sources close to the Shadow Chancellor, George Osborne, highlighted the bank as a problem.
The Conservatives said that deposit-taking institutions enjoying an explicit government guarantee would find it "particularly expensive to engage in risky activities" under their plans to shake up banking supervision.
Sources close to Mr Osborne confirmed that this was at least partly aimed at Barclays, which has rapidly expanded its investment banking operations and taken over Lehman Brothers' US business during the credit crunch.
"One of the consequences of this [the Tory reform plans] could be that Barclays would choose to spin off Barclays Capital. We are relaxed about that," the source said yesterday. "Where we differ from the Government is that we recognise banks that combine risky investment banking activities with deposit-taking as a problem."
City gossips have been talking about a possible spin-off of Barclays Capital for some weeks, ever since the Government said that the FSA would be given powers to force banks engaging in risky activities to hold more capital. However, the Conservatives said their requirements would go further than the Government's proposals.
The Liberal Democrat Treasury spokesman, Vince Cable, said: "If they really mean that, then we are in the same place. My impression is that they have been highly qualified in what they are saying on the banks being too big to fail."
Mr Cable has already said he has nothing against Barclays Capital seeking to become the world's biggest investment bank from a commercial perspective. "But if that is the case, then they cannot expect to be underwritten by the taxpayer. That would be wholly unacceptable," he said.
Expectations of a change of government at the next election will force Barclays to consider the position of Barclays Capital. Unlike rivals Lloyds Banking Group and Royal Bank of Scotland, the company has avoided a government bailout, preferring instead to raise capital from the Middle East. It also recently sold off Barclays Global Investments, its fund management arm, to further strengthen its capital base.
Run by Bob Diamond, an American whose salary package has topped £50m in good years, Barclays Capital grew spectacularly in the years leading up to the credit crunch, becoming a mainstay of the bank's profits. Its retail arm has at best been a mediocre performer. Were Barclays to consider a spin-off, the US, where Bar Cap makes most of its money, would be the likely venue for a flotation.