LONDON (Reuters) - Prime Minister David Cameron wants a major watering down of proposals from the Independent Commission on Banking (ICB) to ring-fence the retail arms of top banks, over fears it could hurt the economy, the Sunday Telegraph reported. The report, which cited government sources, said Cameron had told senior officials that he wanted to move the banking debate on and that any proposals from the ICB to split retail and investment banks and increase capital requirements needed to be reviewed. Asked to comment on the Sunday Telegraphs report, a government spokeswoman said: We are not going to pre-empt the ICB. We havent seen the final report and will respond once the final report is out in a couple of weeks. The ICB, set up last year by the government to examine reforming the banking industry after it got badly burnt by the credit crisis, will publish its final report on September 12. Its findings are set to back proposals made in an earlier interim report to ringfence banks retail arms from riskier trading operations to protect taxpayers from future financial crises. However, Britains Big Four banksBarclays, HSBC and part-nationalised lenders Royal Bank of Scotland and Lloydshave consistently warned that excessively tough regulation could harm the economy. There have also been recurrent media reports that the likes of Barclays and HSBC could move their headquarters overseas, although both those banks have consistently denied they want to move their headquarters away from London. The ringfencing approach would get banks to form separate subsidiaries for different retail and investment banking operations while keeping the same parent holding company. The ICB has also asked banks to hold more capitaltargeting core Tier 1 capital of 10 percent of risk-weighted assetsand the overall impact of the reforms is expected to hit banks profits, which could make it harder for them to lend to businesses. The ICB is still to define the nature of its ring-fencing model, since some business activities such as property lending, business loans and treasury operations could fall into both the retail and investment banking categories. After the final ICB report is issued, it will be up to the governmentthrough a Cabinet committee on banking chaired by chancellor George Osborneto choose what to implement into law, probably starting later this year or early in 2012. However, reforms may not come in until after the planned 2015 general election, while Britain would not want to be out of step with the 2013 introduction of tougher global bank capital and liquidity standards, known as Basel III. The issue of banking reforms has proven to be a difficult topic for the Conservative/Liberal Democrat coalition. Business Secretary Vince Cable has sought a full split of banks retail and investment banking arms, while chancellor Osborne backed the ICBs interim proposal for ring-fencing.