Conservative MP John Redwood believes that reckless casino banking was not to blame for the financial crisis and says forcing banks to separate investment and utility banking could see many move offshore.
In June, the Government set up an independent commission on the banking industry, chaired by former Bank of England chief economist Sir John Vickers.
Writing on his blog, Redwood, who is leader of the Conservative group on economic competitiveness, says Vickers will face pressure to take the view that it was the combination of casino banking and clearing banking that caused the problems.
Redwood says: “The evidence does not bear this out. Splitting investment and clearing banks is not the answer. Banks of all types and sizes got into difficulties, including small and specialist institutions.
“It is increasingly difficult to separate investment bank activities from clearing bank activities. Seeking to stop banks undertaking certain types of financial business might just drive them offshore.”
Redwood says regulators are now pushing banks to hold too much capital at the trough of the economic cycle, making banks unwilling to lend to riskier customers.
He says: “The regulators should delay demanding further improvements until the economy has shown decent growth for a year or more.”