London - Britain's four main banks have agreed to pay lower bonuses and increase lending to businesses following weeks of talks with the government, chancellor George Osborne said on Wednesday.
Osborne said that under the agreement, Barclays, RBS, Lloyds and HSBC would also pay more taxes and be more transparent about the bonuses they pay.
The agreement is aimed at assuaging public anger over taxpayer funds used to prop up the banking system during the credit crisis.
"This morning the heads of the major British banks - Barclays, RBS, Lloyds and HSBC - reached a new settlement with the British government," Osborne told parliament.
"The banks will lend more money, especially to small businesses, pay more tax, pay less bonuses, be more transparent about the bonuses they do pay and make a greater contribution to our regional economy and society," he said.
"The four major banks have also agreed that total bonuses will be lower than last year and lower than they would have been without today's settlement."
Osborne, finance minister for a Conservative-led coalition government that has brought in harsh cuts to reduce Britain's public deficit, said banks would also make an "additional £1.2bn contribution to society".
This would include £200m to capitalise the so-called Big Society Bank - a scheme to fund charities and voluntary groups, he said.
He said anger would remain at the "terrible mistakes of the banking industry and the failure of those who regulated it" - but added that anger "will not bring one percentage point of economic growth or create one single new job".
Ed Balls, finance spokesperson for the main opposition Labour party, told parliament that months of negotiations with the banks had got the government "precious little".
"From a chancellor who talked so tough in opposition and who even yesterday continued to promise much, this is a pitiful outcome and an embarrassing climbdown," he said.
"This negotiation has turned from Project Merlin (the name for the government's negotiations with the banks) into the Wizard of Oz - the curtain has been pulled back and there is nothing there."