Director general of Confederation of British Industry says ploughing ahead with overhaul would be 'barking mad'.
Angela Knight, the banks' lobbyist, warns implementing reforms from ICB report could derail economic recovery.
The head of Britain's biggest lobby group will urge ministers to shelve plans for a major overhaul of banking on Tuesday, warning that they would be "barking mad" to plough ahead with it while the economy is still fragile.
Moving too quickly to separate the retail and investment arms of banks, under plans to be unveiled by the Independent Commission on Banking in two weeks, could threaten the economic recovery by stemming the flow of credit to businesses, John Cridland, director general of the Confederation of British Industry, has warned.
"Taking action at this moment – this moment of growth peril, which weakens the ability of banks in Britain to provide the finance that businesses need to grow – is just, to me, barking mad," Cridland told the Financial Times.
Cridland's intervention comes a day after similar warnings from Angela Knight, the head of the British Bankers' Association (BBA) and will add to the pressure on the chancellor to slow down the reforms.
Sir John Vickers is poised to publish his final report in a fortnight's time and is expected to recommend ringfencing banks' retail operations from their investment banking functions. George Osborne will then decide whether and at what pace to implement any reforms, which are highly sensitive in coalition politics with the Liberal Democrats pushing hard for radical change.
Previous reports have suggested that the chancellor is considering radical ring-fencing, but over a lengthy timetable of up to eight years, mindful of the immediate impact on the economy.
Any suggestion of a delay would be furiously opposed by the Lib Dems. Last night, an aide to the business secretary, Vince Cable, said: "We don't want to pre-empt Vickers but we don't see that tremors in the market are any excuse to delay. We need the framework in place as soon as possible so banks recover on the right trajectory. We recognise it can't be done overnight."
In an apparent dig at the Liberal Democrats who are insisting the reforms go ahead, Cridland expressed frustration that the issue was being sidetracked by politics. "This was all about safer banks for a safer economy. It wasn't about politics," he said. "And I get a sense that there's a little bit of 'we'll do this because of political reasons'.
"We don't want to force some of our remaining world class British companies to shift away from a focus on the UK because the rules have been set unilaterally in the UK," he said. "There's an own goal here about to be scored if we get this wrong."
Knight argued that any reforms to come out of the Commission should be put on hold until the economy has recovered and taxpayers have been repaid for bailing out the banks.
"We have a high degree of uncertainty, market turbulence and lack of confidence that governments in other countries have got a sufficient grip on their economies. We are in for a very difficult autumn," she said.
"This is, therefore, the time to concentrate on economic recovery and paying back... the government and taxpayers. By all means think about new regulation but now is not the time to add that as an overlay with respect to costs, uncertainty or whether it is going to do anything beneficial anyway."
The Treasury said in a statement: "The government set up the ICB to ask the difficult questions that weren't asked before the crisis and this is exactly what the commission is doing. We look forward to receiving the final report on 12 September."
