BANKS should be broken up to help stimulate competition in the financial sector and cut the costs of services to customers, a British think-tank says.
The Institute for Public Policy Research (IPPR) accused the UK government of being "too timid" and said a split of retail and investment banks should be forced.
The Don't Bank on It report said that customers are paying substantial fees and charges because competition has been distorted and regulation has not been effective historically.
It argued that the UK's large financial sector, relative to other similar economies, is a "source of strength", but the challenge to policymakers is how to reduce its associated costs without damaging it.
It also suggested that policymakers might have to look at putting greater curbs on mortgage lending to lessen the chances of any return to potentially risky lending.
This could involve setting maximum loan-to-value and loan-to-income ratios on mortgages, the left-of-centre think-tank said.
The report said the Bank of England should be particularly concerned about any institution that records a sharp increase in its share of the mortgage market.
Meanwhile, risk-taking in investment banking should be reduced, with more done to make senior directors and managers liable for financial losses when something goes wrong, the report said.
It highlighted one idea which would mean that if a government was forced to bail out the investment division of a bank, senior management should suffer "the internal equivalent of bankruptcy", which would mean they lose their jobs and any deferred bonuses and pension rights.
Tony Dolphin, chief economist at IPPR, said: "The Government is making some progress on tackling the implicit subsidies the rest of the economy provides for the financial sector and on reducing future liabilities for UK taxpayers in the event of a financial crisis.
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