SIR John Vickers, chairman of the Independent Commission on Banking, said the downgrade of British banks by Moody's Investors Service was an "entirely benign" development because it showed the taxpayer was less likely to have to step in to rescue a bank.

Part-nationalised institutions Royal Bank of Scotland and Lloyds Banking Group, owner of Bank of Scotland, were particularly hard hit in a downgrade of 12 UK lenders last week.

Sir John told the Treasury committee of back-bench MPs: “I would see it as a natural reflection of the taxpayer getting one step further off the hook.”

Moody’s said the ICB report published last month could mean investors bearing more of the pain of a bank failure.

The ICB’s proposals centre on the ring-fencing of banks’ retail and commercial operations from their potentially higher risk investment banking business to make it easier for them to be wound down if they get into trouble.

Sir John said that small businesses could find it easier to get loans under the ICB’s plans by freeing up deposits and capital. He said: “We expect the supply of credit to be affected, if anything, in a positive direction.”

However, fellow commissioner, former Barclays chief executive Martin Taylor, noted that SME loans were only a “low single percentage” of UK banks’ balance sheets.

Sir John said there was a “low probability” banks would flee from the UK to escape his measures and that no British banks had threatened to move abroad if the recommendations come into force.

There has been speculation that HSBC, Barclays or Standard Chartered might move abroad. But Sir John said he saw a “rather small incentive” for banks to relocate, adding that to move abroad they have to overcome “pretty formidable practical, legal and administrative obstacles”.

Questioned as to whether the ICB had considered splitting HBOS back out of Lloyds, which acquired it three years ago, Sir John said: “One cannot go back to the situation that was three years ago from where we are now.”

The Government has pledged to pass legislation required to implement the reforms before the 2015 general election.