Government may spilt up large banks

BANKS may be forced to split their retail and trading operations in a bid by the new coalition government to water down risk in the City.

The Conservatives and Liberal Democrats yesterday announced a one-year inquiry into the sector that could see the so-called “Volcker rule” imposed on the UK’s institutions.

The rule, named after one of US President Barack Obama’s key advisers, would see large houses like Barclays and Lloyds Banking Group forced to run their investment banking units as separate entities to protect deposit holders from the risks of “casino” trading by proprietary desks.

Nervousness rippled through the Square Mile as it was rumoured Liberal Democrat Vince Cable would co-chair the committee with George Osborne, the chancellor. Cable is seen as more hawkish than his Tory counterpart. But it later emerged Osborne would chair the committee alone.

The parties said banking sector reform was essential to sustain the economic recovery and protect jobs in the future.