Britain's banks should be forced to fully separate their retail arms from investment banking operations if they try to circumvent new rules designed to protect the taxpayer, a top regulator warned.
Andrew Bailey, head of banking supervision at the Financial Services Authority (FSA), said banks should face the threat of being broken up if they fail properly to comply with proposals to ring-fence retail deposits from riskier activities.
Bailey said there was a risk that banks would try to "tunnel under" any ring-fence that was set for them.
"This is an industry which is tremendously innovative at thinking of ways to dress things up to look slightly differently," Bailey told the Parliament Commission on Banking Standards.
"It's not just the banks, they are supported by a very large army of advisers, lawyers, accountants who make very good money out of this business of being creative," he added.
Lawmakers are debating what should be allowed inside the ring-fence and Adair
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