06/14/2012 03:14 EDT | Updated 08/13/2012 05:12 EDT

UK government to announce bank reforms, including separation of retail and investment banking

LONDON - The British government is announcing its proposals for banking reform to prevent the repeat of the crisis which forced taxpayers to bail out two major banks.

The Treasury has confirmed that the government will legislate to isolate retail banking from problems which may arise from riskier investment banking activity. That step was a key recommendation of the Independent Commission on Banking to protect taxpayers from bearing the cost of bank failures and to protect the savings of ordinary depositors.

In a briefing ahead of the release of detailed proposals on Thursday, the Treasury said individual depositors would be compensated before bondholders and corporate creditors in the event of a bank failure. The government already guarantees deposits up to 85,000 pounds ($132,000).