Cutting big international banks down to size would not solve problems raised by the financial crisis and would create a sector unable to offer services required to support corporate clients, a top banker said.
"Size is not an end in itself and it is not necessarily evil either," Deutsche Bank Chief Executive Josef Ackermann told a regulatory conference in London on Monday.
"The refragmentation of financial markets is in nobody's interest… It is unlikely to bring greater stability to our markets," he said.
Multinational firms need to be able to operate on a global scale and only large banks have the resources to service their needs and to finance big deals, Ackermann said.
"The idea that we could run a modern, prosperous economy with mid-size savings banks is totally misguided," he said.
His comments were echoed by Antonio Horta-Osorio, the head of Santander's British operations: "It was not just big banks, there were several small and non-complex banks that failed. Small institutions can pose systemic risk."
Their comments come as EU regulators consider measures to force banks across Europe to sell assets and sometimes even to break up — as in the case of ING — to compensate for billions of pounds received in state aid, potentially creating a raft of new, smaller lenders.
Britain's Royal Bank of Scotland and Lloyds are expected to announce a deal this week that will force them to scale down their size, selling assets in a process Britain hopes will increase competition.
LIVING WILLS
The G20 group of countries have agreed that large banks, whose failure could destabilise markets, should draw up contingency plans for speedy wind downs and be subject to tougher capital rules.
The aim is to tackle the issue of "too big to fail" and lessen the need in future for huge government bailouts.
Ackermann, however, said detailed "living wills", where banks plan for their own demise, "will be very theoretical and lead to inefficient structures". It would also become an open invitation to corporate raiders, he added.
German Chancellor, Angela Merkel, has said banks should not be allowed to "blackmail" governments to bail them out or provide implicit support because they are too big to fail.
Ackermann said it was "not helpful to speak in terms of blackmailing" but that much can be done to reduce the need and scale of government intervention, such as being subject to stricter capital requirements.
Ackermann backed the setting up of a fund, with banks and governments contributing, in order to avoid the "midnight scramble for funds before the Tokyo market opens" when a bank gets into trouble.
It would also help tackle the thorny issue in Europe, which is home to some 40 cross-border banks, of who bails out a multinational bank, known as burden sharing, Ackermann said.
Banks should also not be restricted from paying dividends comparable to other industries — a swipe at the G20 which wants banks to prioritise building capital at the expense of dividends, buybacks and bonuses.
