Since the credit crunch and recent banking crisis in the UK, banks have come under a lot of pressure from all sides regarding their previous irresponsible lending attitudes and offering loans to individuals who had very little chance of ever being able to repay them.

As the UK is now slowly starting to leave recession behind and we are starting to see the first glimmers of economic growth in the country, the Government and the Financial Services Authority (FSA) are looking at ways of tightening up on the regulation of banks, in order to stop a similar situation happening again in the future.

As part of the proposed regulation, banks would have much stricter and tighter requirements placed on them for capital adequacy and liquidity, which means they would be forced to hold more cash in reserve.

In addition to this, regulation could place a ban on certain types of loan, such as self certification loans, as well as restricting lending criteria for potential borrowers through much tighter affordability assessments and possible limits placed on loan to value ratios and income to loan ratios.

Although this course of action will protect borrowers from over stretching themselves in the future, there are many concerns that new regulation could actually stop banks from offering loans to many individuals who would currently qualify for one.

Earlier this week, Lord Mandelson said in a speech, that if regulation on the banking sector became too strict, it could prevent potential borrowers from getting the loans they required and this in turn could be detrimental to the economic recovery of the country and potentially push the UK back into recession.

Angela Knight of the British Banking Association (BBA) welcomed the comments from Lord Mandelson, saying  that banks were already taking action themselves to offer loans responsibly and further regulation should be approached with care and not be too restricting.