The government plans to separate the retail and investment sectors of UK banking to prevent a repeat of the 2008 financial crisis.
Chancellor George Osborne has backed the recommendations of the government-appointed Independent Commission on Banking (ICB) to "ringfence" retail banking away from riskier investment banking.
It also agreed with the ICB which said that Britain's biggest banks needed to substantially increase their retained cushion of assets.
It is hoped the legislation on ring fencing will be completed by the end of the current parliament in May 2015 with banks ordered to comply soon after.
Mr Osborne said: "Our objective is clear. We want to separate high street banking from investment banking, to protect the British economy, protect British taxpayers and make sure that nothing is too big too fail.
"Second, we will make sure the banks have bigger cushions so they are better able to withstand losses."
These comments back a report published in September by John Vickers, chairman of the ICB, which set recommendations to overhaul the banking system to protect the retail sector.
Speaking on Monday, Osborne estimated that the changes would cost between £3.5 billion and £8 billion a year.
The changes would require large banks hold an equity capital equal to at least %10 of their risk assets, and big banks at least 17% - minimising the need for large state bailouts should anything go awry.