Royal Bank of Scotland (RBS) group chief executive Stephen Hester has admitted the government's implicit subsidy to the industry may have fed into bankers' bonuses.
Giving evidence to the Treasury Select Committee yesterday, Hester was asked by Conservative MP David Ruffley about the impact of the subsidy.
Hester said: "To the extent [of being] able to carry less capital than in the past, that implicit subsidy could have fed through... to bonuses."
MPs were grilling Hester and HSBC group chairman Douglas Flint about the proposals of the Independent Commission on Banking.
Asked about the proposed ring fencing of retail operations within banks to protect depositor savings in the event of another financial crisis, Hester also urged caution.
He said: "We need to be careful that we are not creating a ring fence that contains all of the things that lost money.
"I believe that creating a ring-fence increases somewhat the systemic risk and decreases the ability of banks to withstand the risk."
However, Flint argued ring-fencing was required as it would help to maintain the flow of credit which dried up during the banking crisis
He said: "If I were a policy maker I would seek to set aside the funding capacity from the intra-financial sector trading activity."
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