Varley, giving evidence to the Treasury select committee inquiry on whether financial institutions are too important to fail, said banks must be allowed to be profitable.
He said banks will need to be in a strong financial position when the Government withdraws it’s support and warned that forcing banks to hold excessive capital may prevent that.
He also said if all the new regulation currently being proposed for the banking sector is implemented, it will be too onerous.
Asked whether big banks should be broken up, Varley insisted that smaller banks are more volatile than large institutions.
He said the system will not be saved by making big banks smaller, but by making them safer and by basing capital requirements on risk, rather than the size of banks.
Varley said he is confident that Barclays is in a strong financial position, having recorded a profit for every quarter since the start of the economic crisis in September 2008.