Chancellor George Osborne has said that taxpayers will be "better protected when things go wrong" under plans to overhaul Britain's banking sector.
His long-awaited banking White Paper aims to make banks safer for savers, by ranking individual depositors above bondholders and corporate creditors when it comes to recovering cash owed after a bank failure.
The reforms will also create a ring-fence around the high street banks which handle consumer and small business accounts, to insulate them from the risks run by "casino" operations within the same group.
But moves to broaden the range of activities allowed in ring-fenced operations led to accusations from Shadow Chancellor Ed Balls that Mr Osborne was "watering down" reforms.
In his Mansion House speech, Mr Osborne said: "I believe that we have found a workable way to solve what I called the 'British dilemma' - protecting British taxpayers in a way that does not make the UK uncompetitive as a home of global banks."
There are also mounting concerns over the knock-on cost of the reforms. The Treasury estimates the White Paper changes will cost UK banks an initial outlay of £2.5 billion, followed by between £4 billion and £7 billion a year.
The plans are also expected to lead to a reduction in UK economic output of £600 million to £1.4 billion, according to the Government. But it believes these costs will be far outweighed by the benefit of avoiding another financial crisis and mammoth bank bailout, which has cost the UK £140 billion.
Mark Hoban, Financial Secretary to the Treasury, said the plans were "ambitious in scale but balanced in impact".
He told the Commons the Government was "determined to take action to deliver a stable banking sector that underpins, not undermines economic growth". He added reforms should ensure that "investors reap rewards when banks do well but take the pain when banks fail."
Angela Knight, chief executive of the British Bankers' Association (BBA), has warned in a speech that "a growing economy requires a vibrant banking sector to finance it". She added: "This is not special pleading on behalf of the industry, it is special pleading on behalf of the country."
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