Speaking to the BBC's Andrew Marr Show, the Liberal Democrat leader suggested he favoured splitting universal banks into separate retail and investment divisions and stressed the importance of avoiding any repeat of 2008.
"We cannot as a country ever tolerate letting the banking system get so large it becomes a massive liability to the UK economy," he explained. "We need to have a sustainable and prosperous banking sector where the taxpayer is not liable."
Mr Clegg hit out at the previous Labour administration, accusing it of sitting back while the City was "gorging on bonuses", but declined to propose precisely how the break-up of financial institutions could be put into practice.
Last week, Office of Fair Trading chief executive John Fingleton told the Treasury Select Committee that demerging Lloyds and HBOS may be one way of boosting competition in the wider industry.
By Asim Shah