* UK to prioritise taxpayers in bank reforms-minister
* Minister declines comment on details of ICB bank report
* ICB report expected to back "ring-fencing" retail banking
* ICB also expected to back higher capital, more competition
(Updates throughout with more comment, detail, background)
By Sudip Kar-Gupta
LONDON, April 10 Britain will put the interests of taxpayers' ahead of the interests of banks when considering a potentially radical restructuring of the country's banking industry, government minister Danny Alexander said on Sunday.
Government officials received over the weekend an embargoed copy of Monday's interim report from the Independent Commission on Banking, which analysts expect will back ring-fencing banks' retail arms from riskier trading operations to protect savers.
The ICB report could also earmark higher capital for British banks and call for more competition in the sector.
Alexander -- who is Liberal Democrat Chief Secretary to the Treasury and number two to Conservative finance minister George Osborne -- did not comment on details of Monday's report, but said the Conservative/LibDem coalition government was determined to tackle problems within the banking industry.
"The government will take its obligations to taxpayers first. It is in the interests of taxpayers that will be uppermost in our mind in responding to this report, in taking this issue forward, not the interests of the banks," he told BBC television.
"We set up this commission because we have a serious problem which has caused enormous damage to our economy. These banks ... their balance sheets are 5 times the size of the British economy. We have to act on that and we certainly intend to."
BARCLAYS SEEN AS MOST AT RISK FROM ICB REPORT
The credit crisis battered Britain's banking industry, which is one of the main contributors to the UK economy. Britain had to bail out and part-nationalise Royal Bank of Scotland (RBS.L) and Lloyds (LLOY.L) and fully nationalise Northern Rock.
In light of this, the banking commission, headed up by Oxford University academic Sir John Vickers, is probing how to make the system safer and more competitive.
Analysts polled by Reuters expect the ICB to recommend that UK banks form separate subsidiaries for their retail and investment banking arms, thereby "ring-fencing" and protecting savers if the investment bank fails. [ID:nLDE736259] [ID:nLDE72O0X7]
The "ring-fencing" model is aimed at protecting ordinary savers if a company's investment bank fails, and to ensure that a bank's "utility" functions -- such as money transfers or lending to businesses -- still operate under such a scenario.
"Our priority as a government is to make sure that those people who recklessly gambled with our economy are no longer able to be bailed out by taxpayers," said Alexander.
"That's why this commission is looking at separation issues within the banking system to make sure that the bits that are valuable to us as an economy, retail banking and so on, could be protected whereas those people who engage in that sort of casino banking take responsibility for themselves," he added.
Britain's "Big Four" banks - Lloyds, Barclays (BARC.L), HSBC (HSBA.L) (0005.HK) and Royal Bank of Scotland - have all resisted calls for a radical shake-up of their business.
The ICB's findings could also affect Spanish bank Santander (SAN.MC), which now owns the former UK bank brand Abbey, and Standard Chartered (STAN.L) (2888.HK), which is headquartered in London despite making most of its money in Asia.
There is a perceived risk that the likes of Barclays and HSBC could move their headquarters away from London if British banking regulation becomes too much of a burden. [ID:nLDE72T1YL]
Management consultancy Oliver Wyman last month put the cost of Vickers' proposed reforms to UK banks at up to 15 billion pounds ($24.58 billion) a year, while analysts polled by Reuters said Barclays was most at risk from the possible changes to the industry. [ID:nLDE736259] ($1=.6103 Pound) (Reporting by Sudip Kar-Gupta; Editing by Jon Loades-Carter)