British banks should form separate subsidiaries for retail and trading operations to protect ordinary savers and ring-fence their retail arms, a British government-appointed commission said today.

The Independent Commission on Banking, set up to probe reforming a sector which badly burnt taxpayers during the credit crisis, said it had faced a choice between structural radicalism in the form of full separation or a laisser-faire approach with very high capital requirements.

"Separation between retail banking and wholesale and investment banking could take various forms, depending on where and how sharply the line is drawn," the commission said in its interim report.

"The commission is ... considering forms of retail ring-fencing under which retail banking operations would be carried out by a separate subsidiary within a wider group."

The commission said the available evidence and analysis suggested all systemically important banks should hold equity of at least 10 per cent together with genuinely loss-absorbent debt.

"The commission's view is that the 10 per cent equity baseline should become the international standard for systemically important banks, and that it should apply to large UK retail banking operations in any event."

Reuters