Britain’s biggest banks will face complete separation if they flout new rules to ring-fence risky operations from savers’ deposits. The British chancellor will announce legislation today giving the government and a new banking watchdog increased powers if banks fail to split branch operations from the dealing floor.

Launching the banking reform Bill, George Osborne will tell traders at JP Morgan there will be no more “too big to fail”.

Full separation

It comes after the Parliamentary Commission on Banking Standardscalled for a reserve power for full separation if banks did not implement reforms. Mr Osborne had warned the commission against “unpicking the consensus” over reform proposals in the Bill in November, but appears to have heeded their warnings about loopholes.

Sir John Vickers, who chaired the Independent Commission on Banking, has said he “would not resist” a complete break-up of banks if so-called ring-fencing fails.

But the announcement will put the chancellor on a collision course with the banks, which claim the legislation will damage London’s attractiveness as a financial centre.

Anthony Browne, chief executive of the British Bankers’ Association, said: “This will create uncertainty for investors, making it more difficult for banks to raise capital.”

– (PA)