Banks expected to warn of huge threat to recovery

The country's biggest banks and the British Bankers' Association (BBA) are due to meet Chancellor George Osborne to express fears over mounting funding pressure on the industry.

Banks are concerned about the removal of around 400bn in support from Bank of England schemes which have helped banks steer through the financial crisis.

Looming international reforms from Basel regulators demanding banks bolster capital reserves could also mean they are forced to hold an extra 600bn on their balance sheets.

The banks have based their estimates on research prepared by financial services firm PricewaterhouseCoopers, which is said to show that two percentage points could be sliced off UK growth as a result of reforms -tipping the UK back into recession.

Banks have also lobbied Business Secretary Vince Cable - who is trying to push lenders into giving more support for small businesses - with their concerns, according to the Observer newspaper

A BBA spokeswoman said: "There is clearly a lot to be considered in the forthcoming months about the shape and size of reform."

The worries over money being drained out of the system come as the coalition Government also prepares to bring in a levy on the bank balance sheets which is expected to raise 2bn a year from next January.

The Bank of England's latest Financial Stability Review has meanwhile highlighted that banks will have to refinance or replace up to 800bn in funding by the end of 2012.

This risk - along with demands for higher capital limits - could push up costs for businesses if banks hike interest rates in response.

The sector will be in the spotlight on Tuesday when the industry gathers for the BBA's annual conference in London. Speakers include Stephen Hester, chief executive of part-nationalised Royal Bank of Scotland.

In his keynote speech, Mr Hester is expected to call for banks to admit making mistakes and to accept that financial institutions must change to survive.

Other speakers will be Stephen Green, chairman of HSBC, Urs Rohner, vice chairman of Credit Suisse, Gordon Nixon, chief executive of Royal Bank of Canada, Chanda Kochnar, chief executive of ICICI, Lord Turner, chairman of the Financial Services Authority, and Andrew Bailey, executive director for banking services at the Bank of England.