Ed Miliband called for the creation of two new banks as he outlined his plan for "a better banking system" in a major speech today.
The Labour leader, who said Britain needed a more responsible capitalism in his party conference speech last autumn, revealed details of his party's agenda for reforming the banking sector.
He told an audience at the Cooperative Bank that the Libor scandal has demonstrated the failures of Britain's economy "in the last decades".
Shadow chancellor Ed Balls then answered questions on the opposition's proposals. They go further than the Vickers report, which suggests separating retail and investment banking altogether, by enforcing the creation of at least two new 'challenger' banks by 2015.
"We need to take power away from the banks and give it back to the consumer, where it belongs," Miliband said.
"That means better competition. Real competition. Competition to change banking and make it work for people again.
"Let's break the dominance of the big five banks. Let's turn five into at least seven so there is proper choice for the consumer."
Miliband believes further divestitures are the most effective way of creating new challenger banks. Lloyds is already selling over 600 branches to the Co-Op, for example.
The move to boost competition in the banking sector forms part of a broader set of proposals which Labour hopes will help Miliband position himself firmly on the side of reformers – as he did after the phone-hacking scandal.
Labour claims entire communities are being neglected by banks. So Miliband proposed Britain follows the US in forcing banks to publish lists of the businesses and communities they are lending to.
He also called for the creation of a British Investment Bank which would help provide lending to small growing businesses and for major infrastructure projects.
"Every other major country understands that government needs to act to tackle this," Miliband added.
"It's time that British business stopped having to compete with one hand tied behind its back."
Labour is also calling for the introduction of a code of conduct enforced by a professional body similar to the General Medical Council and the Legal Services Board.
It wants a specialist banking crime unit set up in the Serious Fraud Office and for sentencing policy to be reassessed.
Miliband said the changes will result in a shift from "casino banking" to "stewardship banking" based on "responsibility shared by all".
He said: "It will mean root and branch change for our banks if we are to deliver real change for Britain, if we are to rebuild our economy so it works for working people, and if we are to restore trust in a sector of our economy worth billions of pounds and hundreds of thousands of jobs to our country."
Boris jumps to defend the City
London mayor Boris Johnson hit out at those seeking to engage in 'banker-bashing' in his Telegraph column today.
The re-elected City Hall incumbent repeated his previous defence of the Square Mile by pointing out that Britain has the right language, time zone and legal system to provide employment in financial services for hundreds of thousands of people.
"Collectively they produce tens of billions – about 12% of government revenues – that go on schools, hospitals, welfare and roads."
Miliband's concept of 'stewardship banking' is dismissed by Johnson, who says the bankers Britain needs are "not owlish Polonius figures" but those "who are willing to take punts and put their necks on the line".
The mayor wrote: "It is time for British politicians to say it loud and clear and in unison: we need bankers, my friends!
"Yes, by all means arrest anyone who has been involved in a criminal conspiracy to fix Libor. Bang 'em up. Slam 'em away.
"But we need the political establishment in this country to stop slagging off a sector that is utterly crucial to the British economy and the current system of global capitalism – and after four years of navel-gazing since the crash, we have yet to come up with an alternative."