Nigel Wicks, chairman of the British Bankers' Association (BBA), said there has been progress in improving standards, ethics and culture at banks but more needs to be done.

The comments from a banking industry insider come just two days after Britain's Financial Conduct Authority (FCA) slammed lenders for being complacent about improving culture after it fined banks 1.8 billion pounds last month for trying to manipulate currency markets.

This followed the much lower fines in the past two years for banks seeking to rig interest rate benchmarks.

"The issue of building culture is an existential question for today's financial services industry," Wicks told a BBA conference on banking standards and ethics.

"If the industry fails to build the right culture within its firms, it's in dead trouble."

The FCA has made it clear that the fines for attempted forex rigging were increased because they were in a sense a "second offence," Wicks said.

He also interpreted a speech this month from William Dudley, president of the New York Federal Reserve, as an even blunter warning to banks that failing to improve culture could be taken as evidence that they are too big to manage.

"American bankers summed up that statement to me in the words 'you had better shape up or you will break up'," Wicks added.

Banks must be able to justify their actions to society and take personal responsibility for themselves, Wicks said. Strong ethics were also good for business as "fine inflation" cast a shadow over bank share prices.

Banks in Britain will face an extra 4 billion pound tax bill over the next five years after Chancellor George Osborne made changes to tax policy on Wednesday.

(Reporting by Huw Jones; editing by Keith Weir)

By Huw Jones