Speaking before MPs yesterday (January 27th 2011), Robin Budenberg explained that the worth of government stakes in the Royal Bank of Scotland (RBS) and Lloyds - which UKFI manages - could be damaged if the universal banking system was reformed in such a manner.
"We've looked at the dramatic separation option. It's difficult to know the full implications, but it would clearly be negative for value and that is something that we have discussed with Treasury officials," he told the parliamentary select committee.
Mr Budenberg also defended banks' lack of transparency over bonuses, claiming that franker disclosure could make it easier for rivals to poach top talent.
His comments came after the Press Association reported that Scottish secretary Michael Moore had warned RBS the government expected it to be a "back-marker" in the next round of performance-related payouts.
By Claire Archer