Bank bosses to face grilling over bonuses

Chief executives from Royal Bank of Scotland, Lloyds Banking Group and Northern Rock are likely to face questions on bank pay, with lending to small businesses and their eventual return to the private sector also expected on the Treasury Select Committee's agenda.

Bonuses are set for particular focus as US banks prepare to unveil their payouts later this week, with JP Morgan the first to kick off reporting on Friday.

With expectations for multibillion-dollar windfalls for investment bankers, there are fears that UK banks will come under pressure to follow suit.

Reports at the weekend suggested that major UK financial firms were planning to absorb the cost of Alistair Darling's 50 per cent windfall tax rather than cut the size of their bonus pools to remain competitive.

RBS boss Stephen Hester is likely to face several questions about the payouts expected in the bank's investment banking division.

The group has benefited from a sector-wide bounce back in 2009 as investment banks have boomed due to the collapse of competitors such as Lehman Brothers and Bear Stearns, low interest rates and a raft of fundraising deals.

But the prospect of huge payouts at a bank saved from collapse by state support has caused outrage.

Recent speculation signalled that tensions were running high within government over RBS bonuses, with reported claims from one MP that former bankers of ABN Amro - bought by RBS just before the sector's crash - are being paid more now than when they worked at the Dutch bank.

The row over RBS pay was first stoked before Christmas when the board of RBS is understood to have threatened resignation en masse if the Government intervened to cut its bonus pool, although chairman Sir Philip Hampton denied this.

RBS has nonetheless warned that Treasury control over its bonus payments could place it at a "significant competitive disadvantage".

Both RBS and Lloyds - 84 per cent and 43 per cent owned by the taxpayer respectively - will also be quizzed over progress on the lending commitments they made in return for state support as well as the restructuring plans imposed by the European Commission.

Recent speculation over an imminent sale of fully nationalised Northern Rock is also likely to be brought up by the committee following the Newcastle-based lender's split into "good" and "bad" banks at the start of the year.