Business chiefs in war of words over banking reform

Lord Turner will today tell the Parliamentary Commission on Banking Standards that the banking Bill must enforce a "hard" ring-fence on banks' retail and small business operations to protect them in the event of a bank collapsing.

The outgoing chairman of the Financial Services Authority will appear before the commission as it enters its final week, with a report due by the end of the year. That report will have a huge impact on the way Britain's banks are run because many of its recommendations will go straight into the banking Bill.

Lord Turner, who has attacked banks in the past for doing business that is not "socially useful", is expected to be asked whether he feels that watchdogs should be handed reserve powers to break up banks that try to break their ring-fences, which are supposed to protect depositers under plans outlined by Sir John Vickers' Independent Commission on Banking.

Lord Turner's testimony will be followed later in the week by both the Chancellor, George Osborne, and the Bank of England's current Governor, Sir Mervyn King. Lord Turner remains third favourite to succeed Sir Mervyn as Governor of the Bank of England.

Any call by Lord Turner for stricter regulation of the banks is strongly resisted by the Association of British Insurers, which will say in its submission to the Parliamentary Commission this week that political interference is making UK banks "uninvestable".

The ABI, whose members are among the biggest investors in the banking sector, is concerned that the focus on ring-fencing and making banks hold more capital is eroding their ability to grow and with it damaging the prospects for investors and the economy. as a whole.