Commission could split retail banks

The Independent Banking Commission could recommend splitting up Britain's retail banks as part of its report into the future of banking.

The commission, headed by Sir John Vickers, is due to present a discussion paper on Friday outlining the areas it will look into. It had been widely expected to consider whether retail banks should be separated from investment banks.

However, news that it is examining whether retail banks are too large spells bad news for Lloyds Banking Group, which has no significant investment banking operations and was widely expected to emerge from the process unscathed.

Lloyds and Royal Bank of Scotland have already been forced by the EU to hive off parts of their businesses as a consequence of the state aid they received during the financial crisis. However, critics have argued that the British banking market will still be over-concentrated even after that process is completed.