Government backs major shake-up of banks

The report by the Independent Commission on Banking (ICB), which proposes that lenders should be forced to split their retail and investment banking arms to help prevent future bailouts, will be backed by Chancellor George Osborne in Parliament.

Mr Cable confirmed yesterday that the Government was “going to proceed with the separation of the banks”. But with the planned reforms estimated to cost the industry up to £7bn, there are fears they will slow lending at a time when the economy is in danger of sliding into recession.

The moves will also heighten speculation that banks, particularly HSBC, will move their head offices away from London.

Mr Cable said: “We have accepted the recommendations of the commission.

“It is absolutely right that we make the British economy safe. We just cannot risk a repetition of the financial catastrophe we had three years ago.

“Big structural reform of the banks was something we (Liberal Democrats) fought for and argued for and now it is going to happen.”

The Treasury will today publishes a response to the report, which includes plans to force banks to hold more capital to help protect them against future crises.