The Liberal Democrats have backed proposals to break the Royal Bank of Scotland up into a series of local and community banks.
Party members voted in favour of proposals this week at the Liberal Democrat conference in Brighton.
Business secretary Vince Cable also announced plans to plough £1bn into the creation of a “business bank” to lend to small and medium-sized businesses.
The bank will operate via existing lenders and start within 18 months. The Government hopes its investment will be boosted by the private sector.
Further details about where the Government funding is coming from will be announced as part of the autumn statement on 5 December.
Cable said: “We need a new British business bank with a clean balance sheet and an ability to expand lending rapidly to the manufacturers, exporters and high growth companies that power our economy.
“I can announce we will have one. I am working with the chancellor to develop a new institution that will combine £1bn of new Government capital with a larger private sector contribution. This will apply leverage through guarantees to support up to £10bn of finance to small and mid-sized business.”