A carve-up of big banks is firmly on the agenda, the chairman of Britain's Independent Commission on Banking made clear today, even as he ruled out the most radical solutions designed to avoid the necessity of another multibillion-pound bailout of the financial sector.

In only his second public statement since being appointed by the government last summer to review the structure of the banking industry, the former Bank of England economist Sir John Vickers also spelt out the need for holders of bank bonds to suffer losses when banks run into difficulty, and his commission's view that the new capital adequacy plans for the financial sector – Basel III – do not go far enough.

Vickers's much-anticipated remarks came amid an acceleration in talks between high street banks and the government to commit to lending between £160bn and £180bn to businesses this year. Discussions about disclosing more information on top pay are also continuing. The aim is to conclude negotiations with the banks before next week's high-level summit of business leaders and economic policymakers in Davos.

Vickers told his audience today that he wanted to consider "whether, and if so how" structural reforms to the banking industry could work alongside existing plans to bolster bank capital and create "recovery and resolution plans" to cope with crises. He indicated that the new rules from Basel, which could require banks to hold three times as much capital as they presently do, will still not be sufficient to ensure banks hold reserves that can be used as a cushion in the event of collapse.

"If, then, one takes the view that the loss-absorbing capacity of banks needs to be massively enhanced – and beyond the prospective requirements of Basel III in the case of systemically important institutions – there are dilemmas about how best to achieve that," Vickers, a former head of the Office of Fair Trading, told an audience at London Business School.

He ruled out ideas for "narrow" banking – where banks act purely as low-risk, deposit-taking institutions – or other forms of "limited purpose banking". But he explored the idea that so-called "universal" banks, which combine high street businesses and investment-banking operations, might be required to ring-fence certain riskier operations from their consumer businesses – a process known as "subsidiarisation".

"Universal banking has the advantage that a sufficiently profitable or well-capitalised investment banking operation may be able to cover losses in retail banking," said Vickers. "But it has the disadvantage that unsuccessful investment banking may bring down the universal bank, including the retail bank."

He floated the possibility that the riskier operations of banks could be required to hold more capital rather than being split off from the high street bank completely. But he rejected the characterisation of investment banking operations as "casinos": "Retail banking necessarily carries risk, notably via exposure to residential and commercial property markets. Thus the popular 'utility/casino' distinction between types of banking activity seems more catchy than helpful."

Any attempt to split up sprawling banking institutions would meet fierce resistance from the industry. Peter Sands, chief executive of Standard Chartered, warned this weekend that breaking up the banks would be "very damaging".

Lord Oakeshott, a Liberal Democrat Treasury spokesman, said: "I have pinched myself in recent weeks and asked who is really running the country – the banks or the elected government?"