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Threatening to split up all banks if the ringfence does not work will hurt the economy and hit the value of the bailed-out banks, analysts and lawyers claimed yesterday, attacking George Osborne’s plan for the sector.

Individual banks could be broken up if the authorities fear they are trying to get around the partial separation of retail and investment banking, while the whole sector could be hit if the rules are reviewed and found wanting in years to come.

Analysts at the Institute for Economic Affairs argued the whole concept of ringfencing is flawed.

“We need to make bank failure safe. We therefore need more focus on how to wind up failed banks without recourse to taxpayers’ money,” said Mark Littlewood. “Sadly, Osborne seems to want to introduce more prescriptive regulations which will make genuine competition harder and could exacerbate the too big to fail problem.”

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