It won't pay to break up the big banks, warns head of the CBI

As part of a year-long investigation into the future of the sector in the light of the financial crisis, Britain's Independent Commission on Banking (ICB) is considering whether the big integrated banks should be broken up.

But the CBI's director-general Richard Lambert said splitting up the banks in this way was not necessarily a good idea.

"It's hard to see how such a separation would have helped to avert the crisis," said Mr Lambert, speaking at an event organised by financial news and information group Bloomberg.

"I'm with Adair Turner who argues that a system of completely separate commercial and investment banks could still generate destabilising credit and asset price swings and that reforms should concentrate instead on higher capital and liquidity requirements," he added.

Adair Turner, chairman of Britain's Financial Services Authority (FSA) regulator, has said that breaking up the country's banks between retail and trading activities could increase risks in the financial system.

The Independent Commission on Banking is not due to give its final recommendations until September next year and many industry members and analysts believe it is unlikely that the British banks will be ultimately forced to break up.

Lambert added that the current political and public criticism of bankers had put off certain foreign investors.

"Foreign institutions that had been thinking of buying banking assets in the UK are unlikely to press ahead in this atmosphere – I know of one that has already pulled back," he said.

Mr Lambert, making his last speech as Director General of the CBI, also said he did not think that the Bank of England would extend its policy of quantitative easing in the near future, due partly to inflationary pressures.

"Third-quarter numbers and future inflation indicators make it less likely than more likely that we'll get any QE (quantitative easing) soon," he said.