British borrowers will face even tougher lending conditions if the Government ploughs ahead with plans for tougher regulation, banking leaders have warned.
Angela Knight, chief executive of the British Bankers' Association, said the impact of hard-hitting changes to bank oversight had not been thought through.
She said: "I believe insufficient attention has been paid to understanding the impact of changes to law, regulation and new capital requirements or the way they
interrelate.
"This analysis needs to be done now so the change can be properly prioritised, planned and phased in."
Mrs Knight admitted that "mistakes had been made" by banks, but called for the "right balance" in new rules for the industry.
Her attack comes after weeks of wrangling among the Financial Services Authority, Bank of England and the Treasury over who should have the final say on banking regulation.
Lord Mandelson joined the fray at the BBA's annual dinner earlier this week by dismissing calls for the Bank to lead financial regulation in the UK.
The Business Secretary insisted that the FSA must be strengthened, rather than giving away some of its powers.
He said: "While I think there is an argument for the Bank taking a more direct role in financial stability issues, I don't support a twin peaks system.
"I believe the lesson of the last year is that we need a stronger regulator, not a weaker one.
"We need to keep prudential and conduct of business expertise in one place, in a regulator capable of seeing all parts of the picture at once. That regulator has to be the FSA."
Bank of England Governor Mervyn King cranked up the debate recently by demanding more control over banks and suggesting that the biggest banks should be broken up.
He also surprised MPs by claiming he had not been consulted over forthcoming regulatory reforms.
Dr King's deputy at the Bank, Paul Tucker, echoed his comments in his speech to the BBA conference saying banks that are "too big to fail" should undergo a structural overhaul.
Mr Tucker said: "This crisis has reminded a generation of some old truths. Banks can fail.
"But they matter enormously to our economies and so the authorities cannot afford to stand back and allow disorderly systemic failure."
Publication of the proposals to reform the financial regulatory system has been delayed, but it is expected they will strip the Bank of some of its responsibilities but maintain the current "tripartite" regime.
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