Senior bankers guilty of reckless misconduct in the management of a bank should be jailed, the Banking Commission has concluded in its final report.
It was one of a serious of recommendations made by the cross-party commission.
Chancellor George Osborne welcomed the report's proposals, calling it "very impressive work".
ITV News' Business Editor Laura Kuenssberg reports.
If you were wondering how many of the ideas put forward by the Banking Commission the Government would take on, the Prime Minister has just made it pretty plain that the plan to create a new offence that could see senior bankers end up in jail will become law.
At Prime Minister's Questions, David Cameron has just suggested that the Government will back the measure, although any new law would almost definitely not apply retrospectively.
So despite the fact the plan has clearly been designed with the former behaviour of bankers like Fred Goodwin in mind, it will not apply to them or any of the other top bosses at the time of the financial crisis.
Almost all of them have departed from their posts already, their reputations severely damaged. But despite some appetite from politicians and some members of the public, it is unlikely any of them will end up behind bars.
The City of London Corporation welcomed the Parliamentary Commission on Banking Standards report, saying it has put forward "some sensible suggestions" on incentives, improved accountability and increased competition.
Policy chairman Mark Boleat said: “It is important, however, to note that much work has already been done in this area and the impact of past reforms should be properly assessed before more changes are introduced.
"What the banking sector needs is clarity and certainty from policymakers over the future shape it will be required to take in coming years.
"The City Corporation stands ready to help facilitate dialogue to explore how to implement these recommendations”.
Reckless bankers should be jailed, a long-awaited report on banking commissioned by the government has recommended.
David Fishwick, who starred in documentary series Bank of Dave, has told Daybreak that "we wouldn't need this bonus culture [if we had a community bank in each town and city]. "
He added: "People who rob banks go to prison but banks that rob people get paid bonuses and that really has to stop. We need to go back to community banking."
The Banking Commission has recommended a new pay code that could see bonuses deferred for 10 years and powers to cancel outstanding financial awards in the case of a taxpayer bailout.
However, the commission called a bonus cap "crude" and unworkable.
Chairman Andrew Tyrie said: "Recent scandals, not least the fixing of the Libor rate that prompted Parliament to establish this Commission, have exposed shocking and widespread malpractice.
"Taxpayers and customers have lost out. The economy has suffered. The reputation of the financial sector has been gravely damaged. Trust in banking has fallen to a new low".
Chancellor George Osborne has welcomed the Banking Commission's report, calling it "very impressive work".
He wrote on Twitter:
Welcome banking commission report into standards which we called for last year.V impressive work.Will help our plan for stronger safer banks
Labour MP John Mann, who sits on the influential Treasury Select Committee, said the Banking Commission's report does not go far enough:
Banking commission fails to get to grips with the fundamental issue: why banks can take huge risks and get away with wrecking the economy
Banking commission dabbles with banking culture but avoids dealing with bank power
Two key banking commission omissions: accountability and transparency
The shadow chancellor Ed Balls has said that proposals to jail reckless bankers "is the way forward."
Mr Balls added: "The challenge now is to make sure we don't have a repeat of these issues in the future. The Government needs to act now."
Radical plans to split Royal Bank of Scotland (RBS) 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 an influential 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 heavy 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.
This is as an important step towards improved regulation of the financial services sector, and I welcome its focus on good governance, accountability and responsibility.
– Mayor of London Boris Johnson
I've always asserted that where there is wrongdoing it should be rooted out and punished. Equally we need the City to remain competitive, and this report provides a framework that strengthens standards and secures trust without destroying competition.
We should applaud the fact that the UK is leading the world on this, but we should be mindful of the need to bring other global financial centres with us on the journey toward better regulation - not light touch, not heavy handed, simply better.