George Osborne unveiled an "electric ring-fence" to protect savers from casino banking today, but critics warned it would be flattened by the next economic crisis anyway.
The finance-friendly Chancellor said the new Banking Reform Bill will impose a split between banks' retail and investment arms in the event of another bailout.
Mr Osborne told middle managers at JP Morgan's Bournemouth office that "lessons have been learnt" from 2007's meltdown, sparked by trading "bad" debts.
"When the crisis hit, the fire was then so great that the whole economy was sacrificed to put it out," he said.
The banks had been too big to fail - "not just RBS on the High Street, but the trading positions in Asia, the mortgage books in subprime America, the property punts in Dubai."
If banks failed to follow new guidelines insulating their retail operations from risky derivatives trading, a new regulator would have the power to forcibly split them, he said.
But Left Economics Advisory Panel co-ordinator Andrew Fisher told the Star that the proposal would only reduce the risk of individual banks like Northern Rock collapsing, not an economic crisis itself.
And he warned that gobal investment banking would continue to determine the fate of high street banks.
The Libor rate-fixing scandal "wasn't just one or two banks being mischievous," he said. "It was a systemic issue - we actually need to rebalance our economy away from the financial sector.
"First we agree to nationalise the banks, then we do it so that it operates and invests in our interests," he said.
Mr Osborne also said RBS's fine for the Libor scandal would be paid for out of bonuses, rather than the taxpayer taking the hit.
TUC general secretary Frances O'Grady tentatively welcomed the move, saying her members had supported the move since the Vickers commission first recommended it last year.
"But the government is still failing to address the far bigger issue of banking reform - forcing banks to support businesses in the real economy.
"Unless they start to address their poor track record of lending to businesses, other than financial and real estate firms, we will never see the kind of sustainable economic growth that we need," she said.
If you appreciated this article then please consider donating to the Morning Star's Fighting Fund to ensure we can keep developing your paper.
Foreign Minister Alistair Burt's admission that the Cameron government has "supported" a survey of attitudes to US drone strikes in Pakistan's tribal areas amounts to a tacit admission of British involvement.
As Britain faces a new housing crisis we can learn from an occasion when tenants banded together to beat their landlord - and won new council housing
Iain Duncan Smith's brainchild came into force at the end of last month. It's bad news for almost everyone