Concerned by a 6 per cent fall in bank lending last year, business secretary Vince Cable is going to put renewed pressure on banks to increase lending to businesses by tying it to bankers' bonuses.
The bonus payouts of banks, and their power to give dividends, may be curtailed if they do not agree to boost lending to small firms, under the new "carrot-and-sticks" proposals to be tabled today by Cable.
These measures - outlined in a Green Paper on "sustainable finance" - are part of a larger effort by the government to increase the availability of capital to private businesses and prevent another financial crisis.
Cable is also expected to introduce proposals for re-establishing regional stock markets so that smaller business can have better access to capital and investors.
Speaking to The Sunday Times, the business secretary said the government is worried about the behaviour of banks because they are "not acting in national interest."
Cable questioned the banks' practice of paying out dividends and bonuses when the same amount could be used to increase lending to small businesses.