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Project Merlin bank agreement set to be revealed Banks agree Project Merlin lending and bonus deal
(about 1 hour later)
Chancellor George Osborne is set to announce details of Project Merlin, the government's agreement with the banks. A long-awaited agreement with the largest UK banks on lending, bonuses and transparency has been announced by the government.
It is expected banks will agree to lend about £190bn to businesses this year and to reveal more about the salaries of top earners. Under Project Merlin, banks will lend about £190bn to businesses this year - including £76bn to small firms - and reveal salaries details of top earners.
But it is not clear how lending will be monitored or if the agreement will actually be binding. The Bank of England will monitor whether loans targets were being met.
Bank bosses were reportedly "livid" after the government increased a levy on banks on Tuesday. However, Chancellor George Osborne formally ruled out imposing a bonus tax, despite pressure from Labour.
Bonuses On Tuesday, the government increased a levy on banks to £2.5bn this year - raising an extra £800m.
Details of the long-awaited agreement, expected to be announced after Prime Minister's Question Time, are also expected to include support for the government's so-called Big Society Bank. Bonuses
Before the official announcement, David Cameron told the Commons that his government would be taking £200m from the banks that would go into the voluntary sector. 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.
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 asked to show restraint in bonus payments - though these are expected to total £6bn this year. However, while banks have also been asked to show restraint in bonus payments, these are expected to total more than £6bn this year.
HSBC, Barclays, Royal Bank of Scotland (RBS) and Lloyds Banking Group are set to agree to Project Merlin, along with Santander. On matters of remuneration:
BBC political editor Nick Robinson said the government was determined to complete Project Merlin before banks start publishing their end-of-year results and bonus pools next week.
  • RBS, HSBC, Lloyds and Barclays have agreed to publish the pay of their five highest paid executives, who are below board level - though this will not include top-earning traders who do not have managerial responsibility
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  • The chairmen of banks' remuneration committees will tell the City watchdog, the Financial Services Authority, that they are cutting the amount provided for bonuses in 2010, after negotiations with ministers
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  • Lloyds and RBS repeated their 2010 commitment that the cash element of any bonus will not be more than £2,000
  • The government will legislate that from 2012 all big UK banks must publish the pay of their board members plus the eight highest paid executives below board level. This disclosure requirement will apply to the UK operations of overseas banks such as Goldman Sachs and UBS.
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Banks loaned about £175bn to businesses last year and the government wants a commitment that this will increase. BBC business editor Robert Peston said that "on paper at least, the UK will have the most transparent regime for bankers' remuneration in the world".
However representatives of small companies have expressed concern that the pledge by the banks will be "academic". 'Business concerns'
Banks loaned £179bn to businesses last year and the government wanted a commitment that this would increase.
They are also going to be providing £1bn of risk capital over three years for small businesses in parts of the UK worst hit by spending cuts.
The government said that the measure of whether banks are providing the promised credit to business would be among the performance targets used to determine bonuses of bank chief executives.
However, the provision of credit to UK businesses will be on commercial terms.
And representatives of small companies have expressed concern that this means the lending pledge by the banks is "academic".
"The vast majority of businesses are not going to the banks and seeking finance at the moment," said Andrew Cave from the Federation of Small Businesses."The vast majority of businesses are not going to the banks and seeking finance at the moment," said Andrew Cave from the Federation of Small Businesses.
"And those that do are telling us that the cost of borrowing - both existing and new borrowing - is increasing and those issues are not going to go away with today's announcement.""And those that do are telling us that the cost of borrowing - both existing and new borrowing - is increasing and those issues are not going to go away with today's announcement."
The chancellor said this week that he was taking a further £800m this year in his bank levy, a move he said "cleared the way" for Project Merlin to be agreed. The British Chambers of Commerce (BCC) said that small business lending was a separate and "far more important and long-standing challenge" than the debate over bonuses.
BBC business editor Robert Peston said executives had not been irked by the sum being demanded, but rather that it appeared to be a case of "bashing the banks" in the face of public pressure. The BCC's director general, David Frost, said that firms had seen their relationships with lenders strained and that "poor or opaque decision-making, over-centralised processes and a lack of good relationship managers on the ground" had caused a crisis of confidence between business and the banks.
"While the big banks' renewed commitment to small business lending is welcome, ministers and the banks need to focus their energy on improving frontline services for small and medium sized firms," he added.
"Without clear lending processes and more sensible decision-making at a local level, many businesses will still be reluctant to ask for loans and big net lending targets won't be met."
Do you own a small business? Are you struggling to secure credit? Has your business been refused a bank loan?Do you own a small business? Are you struggling to secure credit? Has your business been refused a bank loan?