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Banks agree Project Merlin lending and bonus deal Banks agree Project Merlin lending and bonus deal
(40 minutes later)
A long-awaited agreement with the largest UK banks on lending and bonuses has been announced by the government.A long-awaited agreement with the largest UK banks on lending and bonuses has been announced by the government.
Under Project Merlin, banks will lend about £190bn to businesses this year - including £76bn to small firms - and reveal salary details of some top earners. Under Project Merlin, banks will lend about £190bn to businesses this year - including £76bn to small firms - and reveal some salary details of their top earners.
The Bank of England will monitor whether loans targets are being met.The Bank of England will monitor whether loans targets are being met.
However, Chancellor George Osborne formally ruled out imposing a bonus tax, despite pressure from Labour.However, Chancellor George Osborne formally ruled out imposing a bonus tax, despite pressure from Labour.
On Tuesday, the government increased a levy on banks to £2.5bn this year - raising an extra £800m.On Tuesday, the government increased a levy on banks to £2.5bn this year - raising an extra £800m.
Shadow chancellor Ed Balls accused the chancellor of "putting politics ahead of economics".Shadow chancellor Ed Balls accused the chancellor of "putting politics ahead of economics".
"For the chancellor who talked so tough in opposition... this is a pitiful outcome and an embarassing climbdown," he added. "For the chancellor who talked so tough in opposition... this is a pitiful outcome and an embarrassing climbdown," he added.
Mr Osborne acknowledged that the package would not be enough to assuage public discontent with the banks' role in the financial crisis, saying: "The anger will remain".
However, Treasury sources said that the time had come to move on from "retribution to recovery" - focusing on the lending boost from banks rather than issues over bonuses.
Bonuses Bonuses
HSBC, Barclays, Royal Bank of Scotland (RBS) and Lloyds Banking Group have signed up to the Project Merlin agreement, while Santander has agreed to the lending parts of the deal.HSBC, Barclays, Royal Bank of Scotland (RBS) and Lloyds Banking Group have signed up to the Project Merlin agreement, while Santander has agreed to the lending parts of the deal.
Other pledges include providing £200m of capital for David Cameron's Big Society Bank, which is supposed to finance community projects.Other pledges include providing £200m of capital for David Cameron's Big Society Bank, which is supposed to finance community projects.
However, while banks have also been asked to show restraint in bonus payments, these are expected to total more than £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.
On matters of remuneration: On Wednesday, RBS said its investment bankers would share in a bonus pool of about £950m while chief executive Stephen Hester would get £2m in shares as a bonus.
And Lloyds Banking Group's outgoing chief executive Eric Daniels is in line for a £1.45m shares bonus.
As part of remuneration commitments under Merlin:
  • 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
  • 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
  • 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.
  • 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
  • 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
  • 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.
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".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".
'Business concerns''Business concerns'
Banks loaned £179bn to businesses last year and the government wanted a commitment that this would increase.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.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. The government said that the measure of whether banks were providing the promised credit to business would be among the performance targets used to determine bonuses of bank chief executives.
The £76bn to be loaned to small business is up 15% from 2010 levels.The £76bn to be loaned to small business is up 15% from 2010 levels.
However, the provision of credit to UK businesses will be on commercial terms.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".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 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.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.
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.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."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.""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?