The UK's financial institutions face the possibility of being broken up as a result of the coalition Government's inquiry into the banking sector.
A paper from the Independent Commission on Banking (ICB) – tasked with considered reforms for the UK banking sector to promote competition and stability – said it would consider the separation of retail and investment banking as part of its remit.
The banks were criticised in the aftermath of the financial crisis for not separating their retail and investment operations enough, and faced accusations of gambling with their customers' money.
The move to completely break up the banks would not be supported across the board, however, as a number of critics have claimed that such a move would make the UK's banks less competitive and could see some providers repositioning their headquarters away from the UK.
Earlier this month, the head of HSBC's investment banking business, Stuart Gulliver, suggested the commission's findings could have significant implications for where the institution is headquartered.
The loss of a banking giant such as HSBC from the UK would be bad news for the country's economy.
However, consumer watchdog Which? has called for root and branch reforms.
"Competition on the high street is at an all-time low, with the three biggest retail banking groups consisting of two that would have collapsed without taxpayer support and one that has a woeful record on customer services," it said.
"This is not the template for a market that works well for consumers."
The ICB is to make recommendations to the Government by the end of September 2011.
It will also look at and consider a number of other issues before delivering its verdict.
"We welcome the issues paper by the Independent Commission on Banking and the opportunity to contribute to the debate on the future structure of the UK banking industry," said Angela Knight, chief executive of the British Bankers' Association.
"We look forward to a measured, rational and objective consideration of how we can work together to improve the banking industry in the UK,"
The Building Societies Association also welcomed the news, citing the desire of mutuals to contribute to the debate.
"We hope the Commission examines in great detail the ways in which the dominance of a small number of large state-backed banks in the provision of mortgages, savings and current accounts can be reduced, through an appropriate mix of structural and regulatory reforms," said director general, Adrian Coles.
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