John Varley, Barclays’ chief executive, has attacked plans by the US to force banks to shrink and to stop certain activities such as trading on their own account.

America’s decision to break away from other leading countries in unveiling a set of potentially draconian rules could be very harmful for the banking industry and ultimately customers, Mr Varley warned.

G20 countries agreed to move “in convoy” when they set out objectives to overhaul the banking system at their meeting in Pittsburgh last year, Mr Varley said.

“A big member of that convoy has just left,” he said in evidence to the Treasury Select Committee yesterday.

President Obama’s decision unilaterally to impose rules that will ban banks from proprietary trading, private equity or hedge funds when no customers’ money is involved has prompted “strong feelings” among senior financiers, Mr Varley said.

This is not because the impact will be great — Barclays makes less than 3 per cent of revenues from pure proprietary trading — but because the US is going it alone, said the Barclays' boss.

Mr Varley also signalled he did not agree with Mervyn King, Governor of the Bank of England, over how much reform banks still need to undergo to address the “too big to fail” question and to make them less reliant on the taxpayer if they collapse.

Appearing before the Treasury committee two weeks ago, Mr King said it should be made “very clear” to banks that “radical reform is on the table” in order to transform them from systemic risks into smaller institutions that could be wound down in an orderly way.

Mr Varley said: “The Governor and I may disagree over adjectives but I believe there has been substantial change.”

Citing the fact that Barclays had to undergo “brutal” stress testing by the Financial Services Authority, has doubled its core tier one capital ratio in two years and boosted its liquidity, Mr Varley suggested that further waves of reform could be damaging as it could increase costs for customers.

Mr Varley emphasised that he did not want to be an “ostrich” by refusing to discuss further reform and revealed that Barclays is one of a handful of banks that are guinea pigs in the FSA’s project to create “living wills” so that banks can be wound down safely.

The answer to the too big to fail question is not to cut banks’ size, Mr Varley insisted, but to make them less risky.

“Big banks are not aggregators but diversifiers of risk," he said, citing the fact that it was a string of small banks with a narrow focus that showed the least resilience in the crisis.

“Narrow banks do not help the economy flourish”, Mr Varley said. It requires large banks with skills across several areas to support everything from countries’ debt issuance to carbon trading, he argued.

While Barclays was alone among the main UK-focused banks to avoid taking a bailout from the Government, Mr Varley insisted he was “not complacent” and acknowledged that there had been “a breakdown of trust between banks and the public”.

But he urged governments and central banks not to overreact to the crisis by drowning banks in onerous new capital and liquidity rules as when the various public financial support packages are unwound, “banks must pick up the baton” and support the economy, he said.

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