The Government-backed commission recommends UK banks 'ring-fence' retail from investment banking.
Commission chair John Vickers said it would "make it easier and less costly to resolve banks that get into trouble."
The report recommends that ring fenced banks should be the only operations granted permission by the UK regulator to provide "mandated services", which include taking deposits from and making loans to individuals and small businesses. It also recommends a safety cushion of between 17% and 20% of assets.
Reacting to the report, the Chancellor of the Exchequer George Osborne said:
"This commission has tackled that big question that we face in Britain, which is how can we be a home to successful banks that compete around the world, lend to British families and British businesses, but at the same time protecting us as taxpayers from the cost of them going wrong, and not ending up with a multi-billion pound bill when the bank collapses.
"I think the commission has done a very good job."