Banking inquiry will consider break up

The Independent Commission on Banking (IBC) will look not only at whether to split investment and retail banking operations, but also radical options such as forcing the UK's "too big to fail" banks to divest assets to address competition concerns.

It stressed the commission had not settled on any options at this stage, but chairman Sir John Vickers said "hard questions" needed to be asked.

The IBC - set up in June to look at financial stability and competition - said the financial crisis and subsequent merger of Lloyds and HBOS had reduced the number of players in the banking sector.

It added that current European Commission requirements for part-nationalised Lloyds and Royal Bank of Scotland (RBS) to offload branches and assets could "go further".

One option would be for the Government to use its stakes in the taxpayer-backed banks to improve competition.

"Beyond that, and most radically, is the option of requiring the UK's largest banks to divest assets with a view to creating a more competition market structure," according to the report.