Big banks operating in Britain will not flee the country because of the regulations recommended in the Vickers report, the Chancellor of the Exchequer has assured a group of MPs.

George Osborne told the Treasury Select Committee on 11 January that there is a "British dilemma" for our significant financial sector.

Britain must keep its banks competitive, while ensuring they are regulated properly, to keep London the centre of the financial world, he said.

Teresa Pearce, a Labour MP who sits on the committee, asked Osborne if he thinks the proposals for banking regulation in the Vickers report will cause banks to leave Britain.

"I think that these proposals will make Britain the best regulated, not the most over-regulated, but the best regulated centre for a universal bank, and when you look at the realistic alternatives for those banks, we've got a very good deal," he said.

The Vickers report, authored by the economist Sir John Vickers who chaired the Independent Commission on Banking, suggests retail banking is ringfenced from investment banking within financial companies, to protect consumers from having their money gambled on financial markets.

It also recommends higher capital reserve requirements for banks, to ensure they have contingency cash in the event of a crisis, so they do not have to turn to taxpayers for more bailouts.

"We will have gone a long way to solving the dilemma of how we can be the home of global, successful banks and somehow protecting the British taxpayers from the activities of those banks," Osborne told the committee.

After the financial crash, RBS was left needing a taxpayer bailout when it was deemed "too big to fail" and would have left hundreds of thousands of its retail customers penniless, after it used their deposits to fund risky deals in its investment arm.

The British government now owns 83 percent of RBS, whose management has a history of enjoying large bonuses and remuneration packages, despite the bank's failings.

Osborne told the committee he will take a "keen interest" in any proposals to give RBS management bonuses.

RBS is currently scaling down its investment activities in order to focus on its UK retail banking business, something Osborne said he agreed with.

The chancellor also spoke of his wish for smaller banks to enter the market, to improve competition.

This may, as Vickers first suggested, be encouraged by removing small banks from certain regulation, as well as cutting down on barriers to market entry like simplifying the process of getting a banking license.