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Page last updated at 07:55 GMT, Wednesday, 31 August 2011 08:55 UK

Banking reforms 'could jeopardise recovery'

A senior business leader has warned that changes to banking regulation expected to be recommended by an independent commission led by Sir John Vickers might damage the economy by if they result in the banks lending less.

The report, due next month, is expected to recommend next month that banks' retail operations be kept apart from their more risky investment activities.

But John Cridland, the director general of the CBI believes that the reform are badly timed.

"What's happened since Vickers produced his interim report before the summer is that we've had a radical slowdown in the world economy," he told Today presenter Evan Davis.

"And we're going to have a major problem if growth stagnates and at that point my businesses trying to get cash from their banks is critical and anything which makes it harder for the banks to keep the wheels of the economy well oiled is not good timing."

His comments come after the Business Secretary, Vince Cable, criticised the banks over their opposition to reforms, designed to reduce the chance of future banking failures. He says the sector is using the crisis in the eurozone as a reason for putting off changes.

But the Liberal Democrat MP John Thurso, who sits on the Treasury Select Committee, said immediate banking reform was "absolutely essential" for the economy.

"One of the core problems is the complete lack of competition at the moment, and the failure of banks to actually offer finance that small and medium enterprises either cannot get the finance, or the finance that they are offered is at a price they cannot afford," he told the programme.

"And we are haemorrhaging, and part of that is because banks can make so much money playing the capital casinos that they don't have money available to deploy in the traditional commercial and retail banking sector."

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