Savings must be protected - former Barclays boss'Radical change' to banking system is needed

16 March 2010

Banking Commission David Davis

Sir Martin Taylor, former boss of Barclays, has told the Future of Banking Commission that savings must be protected and that the banks are incapable of instigating the reforms needed to protect against a future crisis.

Sir Martin told the Future of Banking Commission that the narrow banking idea, that consumers' savings should be protected in the event of a bank going bust because it has taken too many risks, may be the best approach.

He said: 'We need some ring-fencing of the retail deposits. I think universal banking is dangerous. [...] There is a huge problem of scale. With international universal banks, nobody has an overview of all the accounting. No one person can really know what's going on.'

'Rearguard action' by banks

The Commission was told that there is a 'rearguard action' going on, with the banks being worried that they will 'not have a say in their own future'.

The narrow banking concept, advocated by Bank of England governor Mervyn King at a previous Commission hearing, was rejected earlier in the day by Royal Bank of England chief executive Steven Hester, who said: 'Many more narrow banks have gone bust than wider banks. There is no factual evidence supporting the idea that the combination of retail and investment banking is more risky.'

Bank regulation

When questioned about what could be done to avoid a future financial crisis, Sir Martin acknowledged that structural reform of the banking sector was required, but warned that there would be considerable opposition from the City. Sir Martin said: 'Bankers themselves are incapable of reforming the industry. Banks will strenuously object.' 

pound coins

Which? Money when you need it

You can follow @WhichMoney on Twitter to keep up-to-date with our Best Rates and Recommended Provider product and service reviews.

Sign up for the latest money news, best rates and recommended providers in your newsletter every Friday.

Or for money-saving tips, and news of how what's going on in the world of finance affects you, join Melanie Dowding and James Daley for the Which? Money weekly money podcast

For daily consumer news, subscribe to the Which? news RSS feed here. And to find out how we work for you on money issues, visit our personal finance campaigns pages.