Sir John Vickers, heading an investigation into the potential break-up of the UK's biggest banks, said taxpayers must not continue to be forced into providing "generous safety nets" which help banks avoid going bust.
The commission was created by the Government in June last year.
Addressing the Regulating Financial Intermediaries: Challenges and Constraints event, jointly organised by London Business School’s Centre for Corporate Governance and The University of Chicago Booth School of Business, Sir John said: "For the most part, retail customers have no effective alternative to their banks for vital financial services, and hence there is an overriding economic, social and political imperative to avert any disruption to the continuous provision of those services.
"The task is to find better ways of ensuring this, if possible, while allowing unsuccessful individual institutions to fail safely."
This also applied to investment banks, he added.
"Ultimately, financial risks have to be borne, and in a market system they should not be borne by the taxpayer providing a generous safety net."
Chancellor George Osborne said he was pleased Sir John was asking "tough, searching questions about how we protect taxpayers".
Sir John went on to say the ICB is considering plans to split investment banks from high street deposit-taking institutions.
He said: "Credible resolution would seem to require at least some form of separability, and arguably there is a case for some form of ex ante separation so that bank operations whose continuous provision is truly critical to the functioning of the economy can clearly be easily and rapidly carved out in the event of calamity.
"But perhaps the credibility of resolution plans can be ensured otherwise than by forms of separation, and the benefits of creating such options would of course need to be weighed carefully against costs they imposed."
Sir John’s speech was part of a two-day conference which heard discussion and debate on how financial intermediaries are regulated.
Delegates to the event included academics, practitioners and policy makers, who debated the implications of new research on the regulation of financial intermediaries.
Much of the first day comprised speeches and panel discussion involving professionals from Europe and the US. Day two was dominated by presentations by academics on the governance and legal controls of financial intermediaries.