Think-tank in call for ministers to break up banks

The Institute for Public Policy Research (IPPR) accused the Government of being “too timid” and said a split of retail and investment banks should be forced.

It argued that this would make the system safer and lessen the chances of the taxpayer having to pump funds into banks in the future by ensuring that no bank is “too big to fail” or “too big to bail (out)”.

The Don’t Bank on It report said customers are paying substantial fees and charges because competition has been distorted and regulation has not been effective historically.

It argued that the UK’s large financial sector, relative to other similar economies, is a “source of strength”, but the challenge to policymakers is how to reduce its associated costs without damaging it.

Competition in banking should be increased by making it easier for new players to enter the market, the report argued.

The left-of-centre think-tank also suggested that policymakers might have to look at putting greater curbs on mortgage lending to lessen the chances of any return to potentially risky lending.

Meanwhile, risk-taking in investment banking should be reduced, with more done to make senior directors and managers liable for financial losses when something goes wrong, the report said.

It highlighted one idea which would mean that if a government was forced to bail out the investment division of a bank, senior management should suffer “the internal equivalent of bankruptcy”, which would mean they lose their jobs and any deferred bonuses and pension rights.

A spokesman for the British Bankers’ Association (BBA) said: “The banking industry shares the commitment of regulators to ensuring that the taxpayer is never again called on to support failing banks.

“The Banking Reform Bill is a small part of the work under way at UK, EU and international levels to enable failing banks to be resolved in an orderly manner.”