Banks may have to give cash reserved for banker bonuses to recession-hit firms, under government plans announced today.

The proposals were published in a new Green Paper illustrating the state’s concern over the lack of sufficient bank lending.

Business Secretary Vince Cable warned lenders that they must begin providing credit to small and medium sized businesses to help boost the economy and avoid enforced regulation.

He said to the Sunday Telegraph: “The banks are not acting in the national interest. I don’t think they get it. At the moment we are talking to them in an amicable way and we are monitoring them, but if this doesn’t work there are combinations of carrots and sticks that can be employed and they are under no illusions about that – and we are not either”.

Mr Cable added: “What we would question is whether banks should be paying out dividends and bonuses when that money could be used to…support small business lending”.

“We are very worried about the behaviour of the banks. It is a very serious problem and potentially a growing problem”, he said.

Currently, banks that are majority-owned by the state, such as Lloyds and RBS, have to adhere to lending codes set out by the government. If other banks do not increase their supply of credit they could, as a last resort, be forced to sign lending agreements issued by the government in the future.

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