Ex-Chancellor Lord Lawson says the Government should go further than ring-fencing retail banks and completely separate the retail and investment arms of universal banks.
Speaking on the Today Programme this morning on BBC Radio 4, Lawson (pictured) said to make ring-fencing work two cultures would need to develop within organisations which will be difficult to achieve.
He said: “It is very difficult when you have the same top management, the same board, the same group of shareholders and you need two totally different cultures: A culture of prudence and caution in retail banking and the go-go culture which is fine in investment banking. To have two different cultures is difficult so I think a complete separation would be better.”
He added that he hopes the Government splits Royal Bank of Scotland and Lloyds Banking Group into separate retail and investment banks before returning them to the private sector.
He said while the ring-fence is an intellectually sound idea, in practice it would probably not be enough.
He added: “The problem with [ring-fencing] is that in practice with pressures of the real world the ring-fence will not be, to mix metaphors, completely watertight and might break down.”
Also speaking on the programme, British Bankers’ Association chief executive Angela Knight said there is still a lot of detail to be discussed.
She said: “The banks are discussing the various options but one of the critical things is that customers have to be confident that their deposits are secure and that as a country we need to have some confidence that should a bank get in to trouble again it can be unwound without all the issues we saw after 2008 when the problem arose.”