Radical plans to split Royal Bank of Scotland into a "good" bank and a "bad" bank must be looked at immediately as part of an urgent rethink of Government plans for privatisation, according to a Parliamentary commission.
In its keenly-awaited final report, the Commission on Banking Standards stopped short of recommending a full break-up of RBS, but said the option must be considered as it warned current plans to return RBS to the private sector risked being "insufficient".
The Government also came under fire for "political interference" in RBS and fellow state-backed lender Lloyds Banking Group, with the report calling for the body in charge of managing the taxpayer stakes to be scrapped.
The recommendations come as part of wide-ranging proposals to shake up the banking sector in the wake of recent scandals.
Excessive pay practices and rewards for failure must also be stamped out, with regulators allowed to defer bonuses for 10 years, according to the report.
Entitled 'Changing Banking for Good', the near-600-page report comes ahead of Chancellor George Osborne's annual Mansion House speech this evening, when he will address the issue of how to reform Britain's banks.
Mr Osborne has confirmed he will outline the next steps for the state-backed banks following the report's recommendations.