The PRA now wants banks and building societies to hold billions of pounds more in reserve on their balance sheets than they had previously been required to hold, to make them less risky.

The two ways in which a bank or building society can raise the required capital are by selling off assets or reducing their liabilities – the latter involves reducing lending to households and businesses.

This runs in direct contradiction to the government’s message to banks and building societies to lend more mortgages and business loans in order to kickstart the economy.

Speaking on BBC Radio 4’s Today programme, Conservative MP and financial expert Patience Wheatcroft explained:

”They want banks to get stronger while asking them to increase lending, which just doesn’t add up.”

Many lenders have reduced their lending in recent years, but Barclays and Nationwide have bucked the trend and increased their mortgage lending.

The new rules may force them to reverse this trend.