High street banks are on the cusp of a second credit crunch that threatens to spark another wave of taxpayer bail outs, a think-tank has claimed.

The New Economics Foundation (NEF) warned that banks will face a £25 billion-a-month funding gap next year and could be forced to seek further State support.

Its report, Where did our money go?, estimated that at least £1.2 trillion of Government cash has been pumped into the banking system.

But NEF said there had been a “shocking” lack of information on how the money has been used, with little sign of any benefit to taxpayers as borrowing rates remain high and credit availability has failed to ease significantly.

It called for urgent reform of the sector and cautioned that results of the current inquiries - such as the Independent Commission on Banking (ICB), which kicked off last Friday - will come too late.

The industry is heading for a severe funding crisis when the current financial lifelines are withdrawn in the coming years, according to NEF.

There are fears in particular over the Bank of England’s £185 billion Special Liquidity Scheme (SLS), which has provided a vital source of funding since the credit crunch, but will not be extended or replaced when it ends in 2012.

All this comes against a background of incoming regulation that is demanding banks put aside more cash to boost their capital strength.

The Basel III capital rules will force banks to more than double the spare cash they hold, while the Government is putting pressure on the sector to lend and support the recovery.

Tony Greenham, head of the finance and business programme at NEF, said: “The public have already paid for the failure of the banks twice, first by bailing them out and then by suffering a programme of drastic cuts to public services to appease the financial markets.

“We need urgent reform of the banking system to ensure that bailed-out banks are not allowed to repeat their failures.”

The group wants to see a range of changes, including splitting retail operations from more risky investment banking and breaking up “too big to fail” players.

The ICB is looking at these issues as part of its widespread investigation of banks, but is not due to report back with recommendations until next September.

“The fact that we are on the cusp of a second banking failure just as a range of Government commissions and inquiries are under way mean that not only must the reviews directly address fundamental reform of the banks, but that action will be required ahead of the outcome of the inquiries,” added NEF.