Banking bonus talks stumble on loans to businesses

An announcement on the talks, known as Project Merlin, was expected as early as today but is now not likely until at least next week or later in February.

One of the disagreements is said to be over figures being mooted for lending to small businesses in the year ahead. Bank bonuses and transparency also remain a sticking point.

Any agreement is also likely to be delayed by Chancellor George Osborne's forthcoming commitments. He is due to attend the World Economic Forum in Davos towards the end of the week.

Project Merlin was designed as a way of reaching agreement on bank pay and lending to businesses, before this year's controversial bonus round.

John Varley, until recently chief executive of Barclays, has been leading the industry's involvement in the talks with the Government.

The Treasury said yesterday that the negotiations were still taking place. However, talks have dragged on amid difficulties over finalising lending commitments and because banks are unwilling to cut their bonus levels for the third year in a row.

Banks are believed to be concerned about promising to lend a certain amount to businesses, many of which face further shocks from the economic crisis.

The Government is reportedly keen to ensure any lending goal is stretching enough, and that some concession on bonus handouts is provided by banks.

A further delay relates to the impact of forthcoming recommendations from the Independent Commission on Banking which is looking into whether or not to break up the big banks.

Sir John Vickers, who chairs the commission, said on Saturday that it was considering plans to split investment banks from high street deposit-taking institutions.

He also said banks may need to set aside more capital for emergencies.

The commission is due to deliver its report in the autumn.