LONDON -(Dow Jones)- Shares in Barclays PLC (BCS) and Royal Bank of Scotland Group PLC (RBS) were under pressure Wednesday, amid growing speculation the banks will be ordered to separate their retail and investment banking operations.

Barclays shares at 1025 GMT were off 7 pence, or 2%, at 301 pence. RBS shares initially fell before regaining ground, to trade flat at 43 pence.

The two banks are seen as the biggest potential losers in structural reforms being considered by the government-appointed Independent Commission on Banking. The body, headed by John Vickers, has said it might recommend a separation of banks' retail and investment banking arms, as part of its broader brief to find ways to reduce systemic risk and promote competition in U.K. banking.

Most analysts say an outright breakup of banks seems unlikely, since the government would risk losing tax revenue from banks or bank units potentially relocating overseas, but they and media reports suggest that the commission could recommend some type of "subsidiarization," in which units would fund themselves independently and otherwise ringfence their operations.

As part of its review, the ICB has asked banks to submit information on how such a move would affect them, people familiar with the matter say.

Barclays Chief Executive Officer Bob Diamond last week told U.K. lawmakers conducting their own inquiry into banking choice and competition that he didn't think subsidiarization would better protect taxpayers. He wants to retain Barclays' model as a "universal" bank that encompasses both activities and which can potentially offset poor performance in one division with strength in the other.

Proponents of subsidiarization, such as former financial secretary to the Treasury Paul Myners, say it can add to financial stability. Critics point out that banks typically end up bailing out their subsidiaries even if they have no legal requirement to do so, as proved in the crisis by dozens of banks with structured investment vehicles, and by HSBC Holdings PLC's (HBC) ongoing support of its troubled U.S. consumer finance unit.

Cormac Leech, an analyst at Canaccord Genuity, said Barclays and RBS shares are likely to underperform in the short term, as investors digest the possibility of major changes.

"We estimate a negative impact of 20% for Barclays, 15% for RBS if the [investment bank] divisions had to fund on a standalone basis," he wrote in a note Wednesday.

Since being set up in July, the ICB has held a series of public meetings to register the views of consumers, businesses and other interested parties. It has also met with industry figures such as Paul Volcker, an economic adviser to U.S. President Barack Obama and former chairman of the U.S. Federal Reserve, who helped craft U.S. legislation aimed at making the financial system safer.

Vickers on Saturday will talk about the commission's work at a conference at the London Business School.

The ICB is due to outline options for structural reform at an interim report in the spring, before making final recommendations to the government in September.

Any recommendations supported by the government would then have to be made into law before taking effect.

An ICB spokeswoman declined to comment on potential break-ups Wednesday. Barclays declined to comment, while RBS said it would be fully compliant with the outcome of the review.

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