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The chancellor has urged Britain's banks to adopt a more cautious approach to lending, amid concerns about rising consumer debt.

In an interview with the Daily Telegraph, Alistair Darling suggests that a return to "good old-fashioned banking" could make lenders more careful about whom they loan money to.

Mr Darling claims: "Institutions have in some cases been prepared to lend to people without checking if they were ever going to repay it.

"It doesn't do any good for anybody, particularly the person in debt but also the lender, to be getting into a situation where you have bad debts," he added.

The warning from the government's finance chief comes after the Citizens Advice Bureau (CAB) revealed earlier this week that debt problems in the UK had reached an "all time high".

According to the national charity some 1.7 million people sought guidance on debt matters from its advisers last year, an increase of 20 per cent on the previous 12 months.

Mr Darling added that the government was "looking into" television commercials which advertise debt consolidation packages, with critics claiming that they are encouraging people to get into even greater levels of debt.

The chancellor also stressed that financial institutions needed to "open their own eyes and be more honest" about the risks involved in various money-making schemes.

Mr Darling warned: "When someone comes up with a fantastic way of making money they need to ask, how is this money being made and what are the risks?"

The warning comes amid speculation that mortgage rates in the UK could rise as a result of ongoing problems in the US sub-prime mortgage market.

The specialist sector, which makes home-loans available to those on low incomes or with poor credit ratings, has been experiencing rising default levels amid past interest rate increases in the US.

Share prices across the world have been fluctuating dramatically as a result, with traders fearing that banks will become more reluctant to lend cash to both businesses and consumers if they make losses as a result of exposure to bad debts in the sub-prime sector.

Yesterday Abbey became the first lender on the UK high street to announce that it was raising its mortgage rates in the wake of the market turmoil and it is thought that others may follow suit.

However Bank of England governor Mervyn King yesterday made clear that the central bank would not be bailing out the banking sector.

In a note to parliament's treasury select committee Mr King stated his belief that the current market turmoil had "at its heart the earlier under-pricing of risk" by finance institutions.