The report calls for the ringfence between high street and investment banks to be "electrified" and warns that plans included in the banking reform bill "fall well short of what is required.”
The report could lead to friction with George Osborne, who last month urged the commission not to put reformation of the banking structure on the political agenda.
A Treasury spokesman said, "The government is grateful to the parliamentary commission on banking standards for its scrutiny of the draft bill and notes that it, 'welcomes the government's action to bring forward legislation to implement a ring-fence'."
This follows last year's recommendation by the independent commission on banking, which was led by Sir John Vickers.
The banking reform bill to implement the Vickers report will be formally introduced into parliament next year.
The report, the first since the Libor scandal, proposes the Bank of England be given legal authority to break up banks that misbehave.
Adrew Tyrie, chairman of the commission, said, “It is the clearest illustration yet that a great deal more needs to be done to restore standards in banking."
"For the ring-fence to succeed, banks need to be discouraged from gaming the rules. All history tells us they will do this unless incentivised not to. That's why we recommend electrification. The legislation needs to set out a reserve power for separation; the regulator needs to know he can use it,” he added.
In addition to senior MPs on the powerful committee, it includes the future Archbishop of Canterbury, Justin Welby, former chancellor Lord Lawson and the former cabinet secretary Lord Turnbull.
Business secretary Vince Cable has given his support to ringfencing. Speaking today, he said, "On splitting the banks, I started out believing that a complete separation was the only way forward. The Vickers commission, however, argued persuasively and unanimously that ringfencing achieved that objective in a less disruptive way. Andrew Tyrie is right to raise the question of what happens if it fails. But it would create further massive uncertainty to reopen the whole bank reform agenda at this stage."
"The banks have been the subject of an endless series of scandals, most recently with Libor fixing and the swap mis-selling to small businesses. It's right that the Tyrie review has made tough recommendations to ensure that there is permanent structural change for the better.”