Stalemate on lending: Consumers scale back borrowing; banks keep capital

This follows signals at the weekend that the Independent Commission on Banking is considering forms of separation between retail and wholesale banking operations, including the subsidiarisation of retail and investment divisions, making the future shape of UK banking and borrowing uncertain.

Commenting on this news, Andrew Gray, UK banking leader at PwC, said: "Governments, regulators, banks and the public are united in agreement that securing financial stability is essential. However, the economic impact and benefit of any changes to the banking system must be thoroughly thought out to ensure it can give consumers what they need and operate without future government support.

"Holding more capital will make the banks safer but will also result in them becoming less profitable. This may lead to the undesirable consequence of the banks facing the choice of restricting lending or charging customers more to borrow. When combined with consumer apprehension around borrowing, this presents a stalemate situation for UK borrowers and lenders. The potential separation of retail and investment operations would add a further layer of complexity in terms of whether retail deposits could be used to fund investment activities."