Richard Lambert opposes banking split-up

• Outgoing CBI chief Richard Lambert told City yesterday crisis was mainly down to poor lending decisions. Pic: PA

Richard Lambert, the business body's outgoing director- general, said he did not think splitting up the banks - opposed by the likes of Barclays, HSBC and Royal Bank of Scotland - was a good idea.

In a speech in the City, Lambert said supporters of a split believed there was a "parasitical relationship" between risky investment banking activities and deposit-taking banks that could jeopardise the latter if things went wrong. "But it's hard to see how such a separation would have helped avert the crisis," the CBI boss said. "By far the biggest losses came the old-fashioned way - from truly dreadful lending decisions; think Ireland or Iceland."

On banking bonuses, he argued that if they were not handled with exceptional sensitivity amid pay freezes and job losses in the public sector, then it would be "toxic in the extreme" to the rebuilding of public trust in the sector.

Lambert said Lehman Brothers was an example of an investment bank that did not take retail deposits, yet its failure had "massive systemic consequences". Other so-called narrow banks that failed amid the financial turmoil included Northern Rock and Bradford & Bingley in the UK and Bear Stearns in the United States.

Lambert added that he agreed with the head of the Financial Services Authority, Adair Turner, "who argues that a system of completely separate commercial and investment banks could still generate destabilising credit and asset price swings".

Lambert, in his final speech on banking as CBI director- general, made his comments against the backcloth of the year-long inquiry into the sector by the Independent Banking Commission. One of the IBC's key remits is to investigate whether the big integrated banks should be broken up.

And in a broadside to politicians, the CBI chief added that current political and public criticism of bankers was in danger of putting off foreign investors.

He said: "If it's important to restore public confidence in the banks, it's just irresponsible to caricature them as casinos.

"This overheated rhetoric is having direct consequences on the shape of the banking system and the emergence of new competition.

"Foreign institutions that had been thinking of buying banking assets in the UK are unlikely to press ahead in this atmosphere. I know of one that has already pulled back."

Lambert said politicians had successfully deflected their share of the blame for the financial near-meltdown to the bankers.But he said while greed and bad judgment on the part of the banks were two of the causes of the turmoil, badly designed policy frameworks and errors on the part of government, central banks and regulators played a part.

"It was these authorities who set the rules that allowed the excesses in the financial markets," Lambert said.