This is according to research undertaken by the National Institute of Economic and Social Research.
Commenting, Ray Barrell, director of macroeconomic research at NIESR, said: “The Independent Commission on Banking has recommended the compartmentalisation of universal banks into retail and wholesale arms. Their proposals are welcome, but bank size and its effects needs to be addressed internationally.
“The Commission wants retail banks to increase the capital they hold. They propose raising it from 7% of their assets to 10% of their assets.
"Bankers argue that these proposals will raise borrowing costs and damage the economy. At best, these arguments are hugely exaggerated.
“Research undertaken at NIESR suggest that these changes will have a small impact on borrowing costs, raising a typical mortgage interest rate from 5% to 5.2%. The banking system would be much safer and the benefits far outweigh the costs.”
