Podium: To get through this crisis we are going to need smaller banks

We cannot allow one part of our economy to behave in a way that puts the rest of the economy at risk when it fails. We need to think deeply about whether we can sustain banks that are not only too big to fail, but potentially too big to bail.

That's why I believe Gordon Brown is wrong to have ruled out at this early stage more fundamental changes to the future structure of the banking industry.

The case for change has now been made by Paul Volcker, Nigel Lawson and the Chief Executive of Bank of America. The Governor of the Bank of England himself has called for "a public and informed debate" on the issue, so it cannot be dismissed out of hand.

Whether any form of separation between retail and investment banking, even within the same financial group, is feasible or desirable, it is clear that size itself is a risk factor.

Not only do large financial institutions do more damage when they get into trouble, but their very size and "too big to fail" status may encourage them to behave irresponsibly and take risks that smaller banks dare not take.

And John Fingleton was right yesterday, when launching the OFT's review of the financial services sector, to highlight the reduction in competition between banks as a consequence of the financial crisis as banks merge and lenders withdraw from the market. In the long term, whilst tighter regulation can strengthen financial stability we need to balance this with need to maintain and enhance competition between banks and others to protect consumers.

By dint of its substantial shareholdings the Government has a powerful influence over the future structure of the UK banking industry, whether it likes it or not.

When the time comes to sell off those shareholdings we need to think very carefully before simply selling them to the highest bidder without thinking through the consequences for the wider economy.

We should look at whether Britain in fact needs smaller banks. For it would be a bitter irony if we came out of this crisis with a banking system that was even more concentrated and even riskier than the one we had before it.

Shadow Chancellor George Osborne was speaking at the Royal Society of Arts on Wednesday