Panel hears why firewalls are better than total split

Banks could quit Britain if they were ordered to split their retail and investment banking operations, a former chief executive of Barclays warned yesterday. Martin Taylor, who was also on Sir John Vickers' Independent Commission on Banking, said its recommendation of ring-fencing retail banks should prove easier to supervise.

"Had we mandated full split, one or two banks could reasonably have asked themselves whether they ought to move," Mr Taylor told the Parliamentary Commission on Banking Standards yesterday.

Legislation making its way through Parliament to force banks to erect firewalls was a "superior solution", although a full split could be necessary if the industry proved "unreformable".

The Commission also published a submission by Sir Alan Budd, the former chief economic adviser to the Treasury and before that Barclays Bank. He joined Barclays shortly after the 1986 Big Bang which enabled the merger of clearing and investment banks.

"Breaking up the universal banks may make the clearing retail side better … but make the investment banking side worse," Sir Alan said. "If problems are more likely to arise on the investment banking side, that is where the solutions have to be found."

He told the Commission: "In my time at Barclays most of my dealings were with the "old" bank rather than the investment banking side and I was aware of the tensions between them. The clearing bankers regarded the investment bankers as overpaid, reckless and not loyal to the bank. The investment bankers regarded the clearing bankers (who provided the capital) as timid, unimaginative and slow."

Sir Alan also said he did not believe the excesses of investment banks could be regulated away. "Both the regulations and the culture may need to change."