Government meeting with banks "constructive" but overshadowed by Cable

GOVERNMENT ministers have said talks with bank bosses were “constructive” but their efforts to pressure them to rein in bonuses and step up lending have been overshadowed by the row engulfing Vince Cable.

The business secretary, the coalition’s most vocal opponent of bankers’ pay, was at the meeting, but has spent the day under fire after comments recorded by undercover reporters for the Telegraph were published.

He told the reporters, who posed as Twickenham constituents, that his Liberal Democrat party favoured a “very tough approach” to the banks that was opposed by “our Conservative friends”.

Cable was also recorded warning that he could bring the coalition down through his resignation - and was battling Rupert Murdoch's proposed takeover of broadcaster BSkyB.

The meeting with the leaders of major banks called by Cable and chancellor George Osborne addressed bank lending – particularly to small and medium-sized firms – and “pay discipline”, the Treasury said in a statement after the talks.

“The banks have put a number of proposals on the table ... the dialogue was constructive,” the spokesman said, adding the government affirmed its desire for a “strong, responsibly and internationally competitive financial sector.”

Osborne described Cable as a “powerful ally” in parliament as they sought to present a united front.

They met with senior representatives from HSBC, Barclays, Royal Bank of Scotland, Lloyds and Spain's Santander, which has a growing UK presence.

Bonuses are at the heart of the “Project Merlin” talks, which could see banks making a commitment to SME lending as part of any deal on pay, industry sources said.

Pressure on UK banks to curb payouts before bonuses are paid in the New Year is mounting, with the Lib Dems in particular ratcheting up the rhetoric.

Recent polls show Lib Dem support at its lowest level in years after the party reversed its election pledge to oppose higher university tuition fees, leading to violent protests. Being tough on banks could help the party regain some support.

Banks are already starting to draw up compensation plans to incorporate new rules curbing bonuses.

The Financial Services Authority has introduced a tough new bonus regimes, which imposes deferrals on parts of a bonus and dictates how much of it should be paid in shares, in line with EU guidelines.