Mervyn King, governor of the Bank of England (BoE), made the comments while being questioned by the Future of Banking Commission.
He explained to the committee, which was chaired by MP David Davis, that the banking sector needs a long-term strategy to ensure it does not face another global crisis in the future.
The governor called for a split between retail banking and riskier investment offshoots while âfire-breaksâ and âfirewallsâ need to be put in place to protect consumer savings.
âOur ability to sustain a large international financial sector in my view depends on demonstrating to others, as well as to ourselves, that it doesn't depend on taxpayer guarantees.â
He stated: âThat is not a sustainable position for a large international banking centre.â
An international agreement on reform will be eventually be required but initially the UK needs to resolve issues with its domestic banking infrastructure, the governor added.
Other members of the commission included Vince Cable, the shadow chancellor for the Liberal Democrats and John McFall, the chairman of the Treasury Select Committee.
By Jim Ottewill