The Independent Commission on Banking is expected to recommend separating high street banking from the risky investment arm, Sky News understands.

The commission is to publish an interim report tomorrow which will recommend an overhaul of the system to protect savers.

It will say the change is needed to ensure the taxpayer never has to bail the banks out again but will stop short of suggesting they are completely split up.

The move is being welcomed in the City. David Buik from BGC Partners told Sky News: "There is no proof the banks are too big to fail.

"What we had in the past was inadequate regulation, balance sheets that got ridiculously out of size and people doing stuff they were not accountable for. This will all change."

The Lloyds Banking Group may be forced to make further reductions in its share of the retail banking sector, Sky News also understands.

The banking report is also expected to say the Lloyds merger with HBOS was a mistake.

At the height of the financial crisis in 2008, the Government waived competition rules to allow the deal to go through but the decision has been questioned ever since.

The new merged bank is 41% owned by the taxpayer and has the biggest share of the UK high street bank market - around 25%.

Lloyds has already agreed to sell about 600 branches and a fifth of its mortgages but the Commission is expected to recommend it goes further.

The full report from the Banking Commission will be published in the autumn.

Mayor of London Boris Johnson backed the idea of a "firewall" to protect savers' money from reckless bankers but warned excessive restrictions risked harming the City.

He told Sky News: "Never forget that London employs hundreds of thousands of people in the financial and banking sector who are not high rollers on stonking bonuses.

"They are people who depend for their livelihoods on London's strength as a financial sector.

"I don't want to see us pointlessly machine-gunning top bankers in an act of revenge. That could do serious damage to the competitive advantages of the City."

Calling for "sensible regulatory reform", he added: "I understand why people are angry but you can't expunge financial services or banking from the way we run our economy.

"London and the UK are very good at it, it brings in huge quantities of cash to the city and generates jobs and employment for hundreds of thousands of people.

"We would be very unwise to be too hostile towards financial services."

Meanwhile a member of the Bank of England's monetary policy committee has told Sky News he wants to see the interest rate go up.

Dr Andrew Sentence says the bank should look to make a gradual rise to 2%, with an immediate rise of 0.5% when the committee meets this week.

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I'll believe it when I see it... Oh, and you can piss off Boris, we all know how people like you are backed

The firewalls proposed are a good first step to any reforms, without actually breaking them up.

Yes Finance does bring in a lot of money but iut can be reformed in a way that does not harm high street banks and if banks are operated completely separately it might actually eliminate the problems with mismanagement. As for Boris it seems like he could be out soon enough so is looking for friends outside rather than sign on.