Chief executive Antonio Horta-Osorio said that ring-fencing is a key element of ensuring that the banking sector can give strong support to the wider economy.
Mr Horta-Osorio delivered his message to the industry at the British Bankers’ Association (BBA) retail banking conference in London today.
Ring-fencing puts a barrier between a high street bank and its investment banking arm, stopping savings deposits from being used to finance riskier global investment activity.
“To people who say ring-fencing is too burdensome, I would simply say that having an effective ring-fence can, over time, reduce the level of capital required in the banking sector,” he said.
In a wide-ranging speech, he said that ring-fencing together with tougher capital rules, improves liquidity and better regulation will ensure safer banks that are no longer a burden for the British taxpayer in case of failure.
However, a number of rival banks argue that ring-fencing makes banking in the UK more expensive than other global financial centres and could lead to British banks moving overseas.
Earlier this month, former Barclays chairman Sir David Walker said the policy “would irrevocably damage” the UK’s banking system.
He added that “there is an urgent and compelling need for the Government to review its approach to ring-fencing”.
In April, HSBC said it was considering moving its headquarters from London, where it has been based since 1992 when it took over the UK’s Midland Bank.
HSBC, which originated in Hong Kong, said the rising costs of banking in the UK is one of the reasons it is considering moving.
But taxpayer-backed Lloyds - unlike Barclays and HSBC - has a very small investment bank, and is largely unaffected by ring-fencing plans.