The big UK banks have failed to participate in the global restructuring of the banking sector that is currently taking place.

They have been hard hit by the Asian and Russian financial crises.

UK banks lack a strong presence in the USA

Their lucrative retail banking business is now threatened by a variety of competitors at home and abroad.

There are real questions about the future profitability of the whole sector.

Any further consolidation would mean thousands of job losses in the industry.

No global presence

The world banking sector has been undergoing huge changes both in the US and Europe, with the creation of global conglomerates capable of operating in all sectors and regions of the world.

In the US, the world's largest banking group, Citigroup, emerged from the merger of Citibank and Travellers Insurance, while regional banks have been scrambling to create a national presence.

In Europe, the two largest Swiss banks merged to form Europe's largest - UBS, while the coming of the single currency is expected to lead to further mergers within Europe.

Germany's biggest bank, Deutsche Bank, assured itself of global reach by buying Bankers Trust, a leading US investment bank.

But UK banks have been notable from their absence in any global deals.

Last November, Martin Taylor suggested that it would take a mega-merger, perhaps between Barclays and Natwest, to create a UK bank which was a serious player on the European or international stage.

But that plan never came to fruition.

Investment banking disaster

The UK banking sector has been a conspicuous failure at investment banking, the highly profitable but most speculative arm of the banking business.

It has been out-gunned by the larger US and Continental banks who have bought up older UK merchant banks like Kleinwort Benson, Morgan Grenfell, and Warburgs.

Last year Barclays began its withdrawal from a global banking presence by putting its equity investment arm, BZW, up for sale.

But it only managed to sell a portion of the business, to Credit Suisse First Boston, for £100m - far less than expected.

NatWest also disposed of its equity business - to BT Alex Brown, part of Bankers Trust.

Nevertheless, the remaining foreign exchange dealing section of Barclays - Barclays Capital - managed to lose £300m when Russia devalued.

The UK banking sector is particularly exposed to the Asian financial crisis, with some of the biggest banks - HSBC and Standard and Chartered - closely linked to Hong Kong.

Retail franchise under siege

The UK clearing banks have had one advantage over their Continental rivals - a highly profitable retail banking business in the UK.

Tesco is now competing directly with the big banks

They have managed to keep customer fees high while shrinking the number of branches and shedding thousands of jobs.

But that business is now under threat from the rise of new banks with no branches and lower expenses.

First Direct, a branch of the Midland, was the first to pioneer 24-hour telephone banking.

Now the Prudential has launched its telephone and Internet account, Egg, aimed at young people.

And the big supermarkets Tesco and Sainsbury have launched their own high interest bank accounts using all their stores as branches.

Mortgage business has also been hit by the strong competition for new business following the demutualisation of many building societies.

Profit margins on mortgage business have now fallen to new lows as firms have competed on special offers of low-cost mortgages.

The UK clearing banks may have to merge in order to survive.