BRITAIN'S treasury chief warned the country's banks yesterday that they face being broken up if they fail to protect their retail operations from their riskier investment arms.

George Osborne told executives from JPMorgan that the days of banks being "too big to fail" are over in Britain, and that taxpayers shouldn't be expected to bail out the lenders. The next time a crisis hits, he wants more options to act.

"My message to the banks is clear: if a bank flouts the rules, the regulator and the Treasury will have the power to break it up altogether - full separation, not just a ring fence," he said. "We're not going to repeat the mistakes of the past."

The new measure gives regulators the power to force a complete separation of a lender's retail business from its investment banking. Risky investments hit banks' stability in 2008, leading to taxpayer bailouts of two big UK banks.

Osborne's remarks follow recommendations from the Parliamentary Commission on Banking Standards that proposals for a "ring-fence" to protect retail banks needed to be "electrified" to discourage banks from probing for loopholes. Osborne had been reluctant to accept the idea, but faced pressure stemming from public outrage over the behavior of Britain's banks.

Britain's banking industry has been caught up in a series of scandals since the financial crisis in 2008. Several leading executives at Barclays have been forced to step down after it was hit with a 290-million-pound (US$456 million) fine for rigging Libor, the rate at which banks lend to each other. Royal Bank of Scotland also faces a 500-million-pound fine for manipulating the key interest rate.

The banking standards commission said the scandal of manipulating key lending indexes had "exposed a culture of culpable greed far removed from the interests of bank customers."

The British Bankers' Association said Osborne's decision was "regrettable." "No other major economy is considering moving away from the universal model of banking because it undermines banks' ability to provide all the services businesses need," the association said.