The ABI and the British Banking Association (BBA) have scrapped plans to merge into one organisation.

KPMG was commissioned to study a potential merger in March. The study had recently been completed and the decision was not to go ahead with the plans.

A spokesman for the ABI said the organisation has a "full agenda of issues and lots of opportunities in the industry".

He said that although the merger had a strategic advantage, it was not a practical move considering the commitment, resources and costs and benefits.

"We are now able to refocus on our objectives and build on the strengths of the ABI," he said.

The decision followed consultation with a wide range of member companies.

It is understood that the ABI felt that it performed well under criticism recently, while the BBA had struggled when confronted about small business changes.

Former Royal & SunAlliance chief executive Paul Spencer, who was a driving force within the ABI for the merger, said the decision was a "great shame". He said the industry needed a strong and high-level representative.

"The industry is in a difficult state and needs a strong leadership and strong body to ensure it survives. The problem is that it is hard to merge and there is never a good time, but the industry has to take the bull by the horns," he said.