By politics.co.uk staff
The government's big response to the 2008 banking crisis is to be confirmed by chancellor George Osborne later.
Banks in the UK are to be forced to split their retail operations from their investment arms, he will tell City bosses in tonight's Mansion House speech.
The biggest shake-up of the financial sector since the 1930s will see banks set up in a way which ringfences their retail operations that deal with savings and loans to the general public.
These will be protected from their riskier investment operations.
Mr Osborne is expected to confirm that he believes banks need “firewalls” to separate the riskier investment arms of the banks from the retail division that looks after ordinary household savings, mortgages and loans.
He will insist that each division has separate staff, computer systems and financial backing.
"This is a far-reaching shake-up to make high street banks safer for the taxpayer," the Telegraph newspaper quoted a Treasury source as saying.
"The government set up the banking commission to ask the difficult questions that were not asked before the crisis and this is right at the heart of their answer."
The proposals follow the conclusion of the Independent commission on Banking, which had recommended that banks hold ten per cent of their capital in their interim report, published in April.
Mr Osborne is expected to say that banks will have to hold more than the international minimum of seven per cent.
He is also due to announce that Northern Rock, whose nationalisation came at the beginning of the banking crisis, will be privatised once more.
Northern Rock had its banking operations split into a 'good bank' that looked after customer savings and a 'bad bank' containing toxic loans. It is expected that the 'good bank' will be sold whilst the 'bad bank' will be run by the Treasury.
Not all will support the move. Last week Stephen Hester, chief executive of the Royal Bank of Scotland, told the Commons' Treasury committee: "I believe that creating a ring-fence increases somewhat the systemic risk and decreases the ability of banks to withstand the risk and has significant costs."