• Hester was speaking to MPs as part of a probe into banking competition. Picture: PA
Eric Daniels' comments came as he and Royal Bank of Scotland counterpart Stephen Hester said they would welcome the government's eventual selling down of their stakes in the part-taxpayer-controlled banks.
Hester said such a sale of the taxpayer's 83 per cent stake in RBS would be a "symbol of recovery" for both the bank and the UK economy.
Daniels told the Treasury select committee, as part of its inquiry into competition in the banking sector: "This is an enormously competitive market and I am not sure that dividing banks further would give a better outcome. Concentration does not lead to lack of competition."
The Independent Commission on Banking has been studying competition in the sector and there is a threat it will order Lloyds to effectively unravel its rescue takeover of HBOS in 2009 when it reports late next year.
"That is a hypothetical question … it is very premature to judge an outcome," Daniels said when asked about that threat.
Hester, whose bank has a major investment banking business, told the committee he believed both big and small banks could be well run and that there should be no "monopoly of wisdom" on the correct size of banks.
Tesco Bank boss Benny Higgins clashed with his firm's former joint venture partner, RBS, on whether the big established banks secretly shared current account data.
Higgins, a former RBS and HBOS executive and now chief executive of Tesco Bank, said it was "unequivocal" that the big established banks routinely shared current account data through a "closed user group" of banks with at least one million customer current accounts. He said he planned to take the matter up with the Office of Fair Trading.
This was disputed by Brian Hartzer, the head of RBS's high street arm. "As far as I'm aware there is no sharing of credit data among the big banks, other than via the credit bureaux who make that data available to people," Hartzer said.
Banking executives said the timing of the sale of the taxpayer stakes in banks was a matter for the government and UK Financial Investments, the body that monitors those investments, which include 41 per cent of Lloyds.
Hester said the beginning of a successful sale "would be symbol of Britain's recovery, it would help the public purse, and would be a symbol of RBS's recovery".
Against the backcloth of the taxpayer's 41 per cent stake in Lloyds, Daniels said: "Certainly I think the presence of any abnormally large shareholder impacts the stock and the other shareholders. "