Adds background in paragraphs 2, 5-6

LONDON, May 18 (Reuters) - Britain on Monday set out changes to bank ring-fencing rules that it said would create a "more agile and proportionate regime," though it stopped short of a major overhaul.

The ringfencing system, in effect since 2019, strictly controls the extent to which banks can use ordinary savers' money to fund risky activity such as investment banking, after the collapse of many high street brands such as Northern Rock at the height of the financial crisis.

The finance ministry said changes would let banks provide up to 80 billion pounds ($107 billion) in additional lending to businesses.

The changes to what is seen as one of the most stringent such rulesets worldwide will also give regulators more powers to tweak the ringfencing regime in the future.

The rules apply to banks with more than £35 billion in retail deposits. There are currently five: Barclays BARC.L , HSBC [RIC:RIC:HSBCUK.UL] , Lloyds [RIC:RIC:LLBP.UL] , NatWest NWG.L and Santander UK SANS_pa.L.

Banks have argued in recent years that changes to rules around bank resolution and the introduction of consumer protection schemes mean that ring-fencing rules have now served their purpose and stymie economic growth by preventing them from lending to businesses as effectively as they would like.

($1 = 0.7486 pounds)