Deputy prime minister Nick Clegg and business secretary Vince Cable are pushing to re-open banking reforms and ban the sale of interest rate swaps and other complex products via the retail arms of ring-fenced banks.
The Liberal Democrats want to make changes to the Bank Reform Bill white paper, published in June, after the FSA found 11 banks has missold interest rate swaps to businesses that did not understand the risk last month.
Sir John Vickers proposed the ban in the final report of the Independent Commission on Banking last September but the Government rejected it at the time.
A senior Lib Dem source told the FT: “We originally decided to allow banks not to separate out derivatives such as this, but now circumstances have changed in light of three recent major banking scandals.
“This is at an early stage, but we want to open up a wider debate on banking reform and this would be part of that.”
But a Treasury official said such products are the bread and butter of retail banking and the reasons for allowing such products remain the same despite the scandals.
The Bank Reform bill white paper is open until the end of the year with parliament set to start debating it in January.