Conservative Sir Peter Tapsell, the Father of the House, said he had spent a lifetime working in financial markets and could only see bad news approaching.
The veteran MP for Louth and Horncastle, who joined the Commons in 1966, urged George Osborne to reform banking to create a settlement similar to the American Glass-Steagall Act, which enforced legal separation on commercial and investment banks after the 1930s crash. The law was repealed in 1999.
Speaking at Treasury Questions, Sir Peter said: "After a lifetime as a stock broker and fund manager, my instinct as bond yields rise all over the world is that we are heading for another banking crisis which will certainly choke off the already inadequate lending of banks to small businesses.
"My dismay is you have not yet committed yourself to the total separation of investment and commercial banks which I have been urging on you ever since you became Chancellor. I am absolutely convinced if we do not go back to something approaching Glass-Steagall, it will be an absolute disaster when the next banking crisis hits us."
"We asked John Vickers to convene a commission that would look at this specific subject. He came forward with proposals to ringfence retail banking as he thought (it) was a better approach.
"We also had a Parliamentary Commission set up across both sides of the House to look at the question of the ringfence and they think the ringfence is the best approach. They made a specific recommendation we would give the regulator the power to split up a bank that had refused to comply with the ringfence.
"We are giving the regulator... a very specific power to split retail from investment banking in a bank that is ignoring the ringfence, and I think that is the right way forward."