Banks face fresh split threat as Parliament eyes new legislation If ring-fencing - which will involve lenders creating a firewall between customer deposits and their riskier investment banking activities - does not properly safeguard the financial system, keeping the option of splitting up banks would offer a compromise between the two sides. The commission's position is known to have hardened following the disclosure of money laundering and Iranian sanctions-busting by HSBC and Standard Chartered. The commission will also have to give its views on how the ring-fenced structure should work. In particular, it has been asked to say whether the ring-fenced bank containing the retail operations should be able to offer derivative products. Neither Sir John's committee nor the Treasury have offered a definitive view on what is seen as a key question. The parliamentary commission has complained to the Chancellor that it has not been given enough information to scrutinise the reforms properly as many details are being left to secondary legislation. Members of the commission have warned they fear they are being asked to give the government a "blank cheque" on banking reform, allowing it to put through measures without proper parliamentary oversight. Mr Osborne set up the commission in July under intense political pressure in the wake of the admission by Barclays it had attempted to rig Libor. Ed Miliband, the Labour leader, had called for a judge-led inquiry in the style of the Leveson Inquiry into media ethics. The main report from the commission is expected some time in the early months of next year and it will make a series of recommendations on how to fix the cultural problems that have seen Britain's largest banks become involved in a series of scandals. The commission is also carrying out its own detailed investigation into the failure of HBOS that could see it producing its own findings ahead of the publication of a Financial Services Authority report. Mr Tyrie and other commissioners believe that it is vital to examine the circumstances of HBOS's collapse carefully to understand what changes are needed in the banking industry. The Commons Treasury select committee, which Mr Tyrie also chairs, last year sent in independent reviewers to oversee the FSA's report into the failure of Royal Bank of Scotland. It was only published following pressure from the committee and other senior politicians. RBS failed in part due to the losses made by its investment banking arm, giving weight to those who argue lenders should not be able to operate a universal banking model whereby retail and investment banking businesses are contained within one bank. Speaking to The Daily Telegraph last week, Andrew Bailey, the head of the Bank of England's prudential regulatory authority, said he expected that banks would be having an "active debate about the size of their investment banking operations going forward." Mr Osborne told MPs last week that he thought RBS should have a much smaller investment banking arm. RBS is already in the process of cutting back its trading and markets business amid pressure to become more risk averse.