Government seals deal over bank lending and bonuses

The government has reached an agreement with the largest UK banks on lending and bonuses.

Under Project Merlin, banks will lend about £190bn to businesses this year.

Of that £76bn will go to small firms, starved of lending.

The Bank of England will assess whether the loans targets are met met.

Chancellor George Osborne formally ruled out imposing a bonus tax.

But the chairmen of banks' remuneration committees say are cutting the amount provided for bonuses in 2010, after negotiations with ministers.

HSBC, Barclays, Royal Bank of Scotland (RBS) and Lloyds Banking Group have signed up to Project Merlin, while Santander has agreed to the lending parts of the agreement.

Santander UK chief executive Ana Botín said: “We are fully behind the government’s growth agenda and focus on supporting SMEs. Santander will continue to increase its lending to SMEs and its market share, as it has done for the past two years."

Bob Diamond, chief executive of Barclays, said: "The UK has been our home for 320 years, and we are committed to play our part in enabling and supporting the recovery of the British economy. The plans set out in this announcement demonstrate our commitment to doing that."

Lloyds Banking Group said in a statement that it was reducing its chief executive Eric Daniels' bonus to £1.45m.

“The Board took into account the current environment and desire for restraint. It is proposed that this award will be deferred into shares until at least March 2013, which exceeds FSA requirements," it said.

Other pledges include providing £200bn of capital for David Cameron's Big Society Bank, which is supposed to finance community projects.

Banks have also been urged to rein in bonus payments.