Osborne plans to sell Northern Rock to a single buyer
Chancellor George Osborne has confirmed that he is going to try to sell Northern Rock to a single buyer.
He has not rejected other options, but has been advised he will make the most money by selling it in one go.
In his Mansion House speech, Mr Osborne also said that banks should ring-fence retail from investment banking.
He said banks must be set up so that their High Street branches and savings and loans would not be damaged if their trading arms ran into trouble.
The legal separation of the functions of big banks was recommended by the Independent Commission on Banking.
The auction of Northern Rock is expected to raise about £1bn, which is less than the £1.4bn the government injected into the bank, although not all of it is to be sold.
The former mutual has been split into a "good bank", containing customers' savings and about 70 branches, and a "bad bank" containing the more toxic loans.
The former is set to be sold, while the latter will continue to be owned by the Treasury.
However, shadow chancellor Ed Balls called for Northern Rock to be mutualised rather than sold off, and accused Mr Osborne of failing to give the option serious consideration.
He has also criticised the chancellor for not announcing the sale in the House of Commons first.
Mr Osborne said that, "the independent advice I have received is that a sale process is likely to generate substantially the best value for the taxpayer and should be explored as a first option".
Even selling to a single buyer, Northern Rock may still be remutualised because the Treasury expects to receive bids from Yorkshire Building Society and from Coventry Building Society.
Other possible bidders include Sir Richard Branson's Virgin Money and NBNK, the company set up last year to buy banks, although both Virgin and NBNK are more interested in buying Verde, the much bigger banking business that Lloyds is being forced to sell.
Robert Peston said the restructuring of banks to protect their retail businesses would represent "the most significant reform to our banking system since Big Bang in 1986 made it much easier for our giant banks to buy stock brokers and become huge in investment banking".
Mr Osborne also said that banks should have to hold more capital to protect themselves against future losses than the new international minimum of 7% of their risky assets.
He did not put a figure on what minimum he will impose, but Treasury sources said that 10% would be "the right ballpark".
The 10% minimum was another recommendation of the Independent Commission on Banking (ICB) in its interim report in April.
At the time, Mr Osborne welcomed the report, but he has not previously endorsed its findings.
The shadow chancellor, Ed Balls, has also given the commission his backing.
"To protect customers and taxpayers we need tough accountability and transparency and clear, workable and robust firewalls," he said.
The commission's final report, which is expected to give details of how banks' firewalls will work, is due to be published on 12 September.