LARGE banks won&rsquo;t be forcibly broken-up by the authorities, Financial Services Authority (FSA) chairman Lord Adair Turner told the Treasury Select Committee yesterday. But those that take greater risks should face more stringent capital requirements than smaller or safer rivals, he said. <br /><br />Turner praised a plan first aired by US Treasury secretary Tim Geithner, envisaging a &ldquo;sliding scale of capital requirements which simply require higher capital requirements from large banks or from banks involved to a greater extent in risky trading&rdquo;.<br /><br />The proposal for what Turner termed a &ldquo;tax on size&rdquo; directly contradicts a statement from Bank of England governor Mervyn King, who hinted last week that lenders may have to be forcibly shrunk, saying that any bank deemed too big to fail was simply too big.<br /><br />Addressing the group of MPs, chaired by Labour&rsquo;s John McFall, Turner warned that firms were failing to take on board the need for regulatory reform, warning that &ldquo;exhaustion&rdquo; was causing firms to return to their old remuneration models.<br /><br />When asked whether RBS chief executive Stephen Hester&rsquo;s generous &pound;9.6m pay deal, was a sign that banks were returning to &ldquo;business as usual&rdquo; he said: &ldquo;I&rsquo;ve some concerns that may be the case.&rdquo; <br /><br />He refused to single out Hester but said he had evidence of &ldquo;aggressive hiring&rdquo; at investment banks, including bonus promises that did not reflect the FSA&rsquo;s efforts to curb the bonus culture. He warned that the regulator was &ldquo;going to make sure we are being radical enough&rdquo; in the face of any reluctance from financial institutions.<br /><br />The City watchdog is due to publish changes to its rules requiring firms to ensure that remuneration structures do not encourage high-risk trading within the next few weeks.<br /><br />&ldquo;We do need to try to make significant changes to remuneration approaches of banks and investment banks,&rdquo; he said.<br /><br />Turner did not advocate a UK version of the now defunct US Glass-Steagall Act, which enforced the separation of investment and deposit-taking banks. But he said it was possible that the FSA could act to &ldquo;limit the size of proprietary trading activity&rdquo;, to reduce risk taken by deposit-taking firms. He added that risk committees at banks should have more direct contact with regulators to ensure they are not held back by executive directors.<br /><br />Turner also moved towards a compromise over the division of supervisory powers with the Bank of England, floating the idea of a joint financial stability committee (FSC).<br /><br />The committee would be chaired by the Bank of England governor, with FSA officials working alongside him to identify potential threats to economic stability.