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Inquiry to look at banks break-up

The Government inquiry into banking reforms will consider breaking up Britain's largest high street banks to increase competition, it has been confirmed.

The Independent Commission on Banking (IBC) will look not only at whether to split investment and retail banking operations, but also radical options such as forcing the UK's "too big to fail" banks to divest assets to address competition concerns.

It stressed the commission had not settled on any options at this stage, but chairman Sir John Vickers said "hard questions" needed to be asked.

The IBC - set up in June to look at financial stability and competition - said the financial crisis and subsequent merger of Lloyds and HBOS had reduced the number of players in the banking sector. It added that current European Commission requirements for part-nationalised Lloyds and Royal Bank of Scotland (RBS) to offload branches and assets could "go further".

One option would be for the Government to use its stakes in the taxpayer-backed banks to improve competition. "Beyond that, and most radically, is the option of requiring the UK's largest banks to divest assets with a view to creating a more competition market structure," according to the report.

Another central reform under consideration is the controversial issue of separating investment and retail banking operations.

Business Secretary Vince Cable has been vocal in his calls for "casino" banks to be hived off from retail deposits. But banking giant HSBC and Standard Chartered have both recently warned such a move could prompt them to move their UK headquarters, sparking fears of a mass exodus.

Sir John, former chairman of the Office of Fair Trading, said: "Experience shows that the risks from not asking hard questions about financial stability and competition are far greater than from doing so.

"Questions about the structure of banking need to be debated in an open, rational way, and we would like to invite anyone with an interest to provide us with views and evidence."

The IBC has until September 2011 to report back with its recommendations.

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