Business Secretary Vince Cable has said banking reforms will go ahead despite a row over the speed of the changes.
CBI director general John Cridland said taking action now could starve businesses of the capital they needed and damage the economic recovery.
But Mr Cable said that suggestion was “disingenuous in the extreme”.
Ensuring taxpayers are not liable for any future losses or bank collapses, and ring-fencing banks’ retail operations, are among the proposals.
Anxieties about the big financial institutions were “all the more reason for grappling with this issue”, Mr Cable told The Times.
The Liberal Democrat minister said: “It is disingenuous in the extreme to use the current context to argue against reform.
“Banks are in a way trying to create a panic around something which they know has got to happen.
“The governor of the Bank of England and many other people have been arguing that we have to deal with the too-big-to-fail problem.
“We can’t have big global banks with balance sheets bigger than British GDP underwritten by the taxpayer; this can’t go on and it has got to be dealt with.”
The Independent Commission on Banking’s final recommendations are due on 12 September.
In its interim report published in April, the banking commission – chaired by former Bank of England chief economist John Vickers – recommended ring-fencing banks’ retail operations from their investment banking arms.
It also said that taxpayers should not be liable for future losses, and that depositors should get their money back before creditors.
But Mr Cridland told BBC Radio 4′s Today programme there had been “a radical slowdown” in the economy since that interim report and there was now real concern about the impact of any reform.
The tussle between the banks and the business secretary is more than just another bout of political fisticuffs between Mr Cable and those he once dismissed as “spivs and gamblers”.
The stakes for the government over banking reform are dangerously high.
If ministers decide to delay the reforms – as demanded by the banks – and there is another banking crisis, then the electoral repercussions could be devastating.
On the other hand, if ministers decide to ignore the banks’ warnings and press ahead quickly, and this then results in bank lending faltering, the consequences for the coalition could be equally serious.
No wonder then that within Whitehall, ministers are still undecided about how fast to move on reform and whether to legislate before the next election.
“We’re going to have a major problem if growth stagnates, and at that point, my businesses being able to get cash from their banks is critical,” he said.
“Anything which makes it harder for banks to keep the wheels of the economy well-oiled is not good timing.”
Andrew Lilico, from financial consultancy Europe Economic, agreed that plans to force banks to hold more capital in reserve – rather than lend it out – could “tip us into a great depression”.
But he said pressing ahead with reform now need not be a problem if the changes introduced were the correct ones.
“If you have the right sort of reforms… which in this case ought to be means of making it easier for banks to be allowed go bust safely without causing problems for taxpayers or the wider economy, you should introduce them at the earlier possible opportunity.
“In fact, it’s amazing that the crisis has gone on since 2007 and serious reforms have not yet been introduced.”
The Vickers commission was set up by the government last June to review the UK banking sector after bailing out some of the UK’s biggest banks during the financial crisis.
Prime Minister David Cameron said the government wanted to wait for the full report before responding to its recommendations.
And he said: “I think the key thing we want from our banks is really two things. First of all, to be lending into the real economy so we can support growth and jobs.
“But the second thing we do need to make sure that our banks are not taking risks that put the economy at risk.”
British Bankers’ Association chief executive Angela Knight said banks should be allowed to “finance the recovery first, pay back the taxpayer next”, and only then set about reform.
“If more regulation remains at the top of the list, then this will only have the affect of risking the recovery which is so essential to our future,” she said.
The government is under no obligation to implement the Vickers recommendations.
Treasury sources say there have been no official discussions on when any changes might be brought in and have refused to promise legislation before the next general election.
There has been speculation the reforms could possibly be delayed until 2019, but ministers are expected to make their position clear by the end of the year.