The Independent Commission on Banking has outlined a number of proposals for the sector in its interim report, but has stopped short of calling for retail and investment banks to be split.

The commission has published a number of proposals for the banking sector, which could lead to reform of how they are run and how they operate.

Banks were relieved to find out the commission is not arguing for the break-up of banks' retail and wholesale or investment banking businesses.

However, the commission said retail banking operations could be 'ring-fenced' operated by a subsidiary.

The report identified the need for 'important' banks to hold equity of at least 10 per cent to achieve greater loss-absorbing capacity, which it said should be the international standard.

It also mooted the possibility of ranking claims by retail depositors rank higher than unsecured creditors.

The commission is seeking feedback from banks over a number of issues and is due to publish a full report in September.