The report proposes that retail banks should be ringfenced from their investment banking arms and be subject to a competition investigation in 2015.

Domestic retail banking services should be inside the ringfence and have their own independent board separate from the parent bank.

Deposit-taking and overdrafts to individual and small and medium-sized businesses would be allowed within the ringfence while loans, securities and derivatives would not.

A sixth to a third of a bank’s balance sheets should be placed within the ringfence.

The report, by Sir John Vickers and the Independent Commission on Banking, gives banks until 2019 to complete the separation.

This would coincide with the international rule changes introduced by regulators in Basel, Switzerland.

Barclays and Bank of Scotland are expected to be most affected by the changes as they both have large investment arms operating alongside a high street bank.

The changes are expected to cost between £4bn and £7bn but the report says this would be less than the wider costs of another financial crisis. It is hoped the changes will prevent a repeat of the taxpayer bailout in 2008.

Dr Neil Bentley, deputy director-general at the Confederation of British Industry, said: “The UK is going it alone on ring-fencing so the Government must rigorously examine how and when to implement these proposals, otherwise it risks damaging businesses and threatening growth.

“The UK needs a stable and resilient banking system but it is critical that the Government implements these reforms in a way that supports lending to businesses and helps growth.”

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