Project Merlin
Encyclopedia
Project Merlin is an agreement between the British Government of David Cameron
and four of the major high street banks in the United Kingdom. These banks are Barclays, Lloyds Banking Group
, the Royal Bank of Scotland
and HSBC
. The agreement covers aspects of banking activity, notably lending
, pay and bonuses
with the intention of promoting lending to businesses, particularly small businesses, curbing the size of bankers' bonuses and promoting transparency with regards to executive pay. The agreement was finalised on 9 February 2011.
as a response to the Financial crisis of 2007-2010. The Northern Rock
bank had already been nationalised following its collapse in 2007, the government subsequently part-nationalised Bradford and Bingley, Lloyds Banking Group
and the Royal Bank of Scotland
. The government had been concerned about low levels of bank lending during the recession that followed the banking crisis and had also been critical of high levels of pay and bonuses in the financial sector. In the 2009 Pre-Budget Report, the Labour Chancellor of the Exchequer, Alistair Darling
announced a temporary tax on bankers' bonuses, which required banks to pay 50% of all bonuses above £25,000 as a tax. This tax was equivalent to a 33.3% income tax. This tax was temporary and lasted only for one year, but some, including Ed Miliband
, the leader of the Labour Party called upon the coalition government to extend this tax as a response to predictions that UK banks would pay out high levels of bonuses in 2011.
George Osborne
. Under the agreement banks will lend about £190bn to businesses during 2011 - including £76bn to small firms - curb bonuses and reveal some salary details of their top earners. The Bank of England
will monitor whether loans targets are being met. This was in addition to the government increasing its levy on banks to £2.5bn in 2011 - raising an extra £800m. HSBC
, Barclays, Royal Bank of Scotland
(RBS) and Lloyds Banking Group have signed up to the Project Merlin agreement, while Santander
has agreed to the lending parts of the deal. Other pledges include providing £200m of capital for David Cameron's Big Society
Bank, which is intended to finance community projects.
, chief executive of the British Bankers Association, who said, "This is an unprecedented set of statements from Britain’s big four lending banks. There has been a determination to work together and that is shown by what we have seen here." But the Engineering Employers Federation, the trade body which represents manufacturers in the United Kingdom said, "Industry will feel today’s statement on Bank lending did not go nearly far enough. The new targets may lead to some increase in lending to SMEs, but the track record of previous agreements is not a good one. [...] Today's statement left untouched the key issues of lack of competition amongst the Banks, insufficient transparency in lending decisions and the lack of understanding of its customers. Until these issues are resolved, access to finance will remain the weak link in the government's strategy for growth."
Ed Balls
, the Shadow Chancellor
, criticised the deal as "toothless" and suggested that it contained a "clear get-out clause which allows the banks to do whatever they wish to enhance the interests of their shareholders.". British Liberal Democrat
peer Lord Oakeshott
resigned as a Treasury
spokesman in the House of Lords
after making an outspoken attack on the agreement. He dismissed it as "pitiful", saying officials at the Treasury "couldn't negotiate their way out of a paper bag. [...] If this is robust action on bank bonuses then my name's Bob Diamond
[the boss of Barclays Bank] and I’m going to claim my £9m bonus next week.". Danny Alexander
, the Lib Dem Chief Secretary to the Treasury
later said that Oakeshott had resigned "by mutual agreement".
United Kingdom coalition government (2010–present)
The ConservativeLiberal Democrat coalition is the present Government of the United Kingdom, formed after the 2010 general election. The Conservative Party and the Liberal Democrats entered into discussions which culminated in the 2010 coalition agreement, setting out a programme for government...
and four of the major high street banks in the United Kingdom. These banks are Barclays, Lloyds Banking Group
Lloyds Banking Group
Lloyds Banking Group plc is a major British financial institution, formed through the acquisition of HBOS by Lloyds TSB in 2009. As at February 2010, HM Treasury held a 41% shareholding through UK Financial Investments Limited . The Group headquarters is located at 25 Gresham Street in London, with...
, the Royal Bank of Scotland
Royal Bank of Scotland
The Royal Bank of Scotland Group is a British banking and insurance holding company in which the UK Government holds an 84% stake. This stake is held and managed through UK Financial Investments Limited, whose voting rights are limited to 75% in order for the bank to retain its listing on the...
and HSBC
HSBC
HSBC Holdings plc is a global banking and financial services company headquartered in Canary Wharf, London, United Kingdom. it is the world's second-largest banking and financial services group and second-largest public company according to a composite measure by Forbes magazine...
. The agreement covers aspects of banking activity, notably lending
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
, pay and bonuses
Bankers' bonuses
Bankers' bonuses are traditionally paid or awarded to some workers in the finance industry at the end of the bank's financial year. They are intended to reward employee behavior during that year that has increased the profits of the bank or some relevant part of its business , as shown by the annual...
with the intention of promoting lending to businesses, particularly small businesses, curbing the size of bankers' bonuses and promoting transparency with regards to executive pay. The agreement was finalised on 9 February 2011.
Background
In October 2008, the British Government introduced a bank rescue package2008 United Kingdom bank rescue package
A bank rescue package totalling some £500 billion was announced by the British government on 8 October 2008, as a response to the ongoing global financial crisis. After two unsteady weeks at the end of September, the first week of October had seen major falls in the stock market and severe worries...
as a response to the Financial crisis of 2007-2010. The Northern Rock
Northern Rock
Northern Rock plc is a British bank, best known for becoming the first bank in 150 years to suffer a bank run after having had to approach the Bank of England for a loan facility, to replace money market funding, during the credit crisis in 2007. Having failed to find a commercial buyer for...
bank had already been nationalised following its collapse in 2007, the government subsequently part-nationalised Bradford and Bingley, Lloyds Banking Group
Lloyds Banking Group
Lloyds Banking Group plc is a major British financial institution, formed through the acquisition of HBOS by Lloyds TSB in 2009. As at February 2010, HM Treasury held a 41% shareholding through UK Financial Investments Limited . The Group headquarters is located at 25 Gresham Street in London, with...
and the Royal Bank of Scotland
Royal Bank of Scotland
The Royal Bank of Scotland Group is a British banking and insurance holding company in which the UK Government holds an 84% stake. This stake is held and managed through UK Financial Investments Limited, whose voting rights are limited to 75% in order for the bank to retain its listing on the...
. The government had been concerned about low levels of bank lending during the recession that followed the banking crisis and had also been critical of high levels of pay and bonuses in the financial sector. In the 2009 Pre-Budget Report, the Labour Chancellor of the Exchequer, Alistair Darling
Alistair Darling
Alistair Maclean Darling is a Scottish Labour Party politician who has been a Member of Parliament since 1987, currently for Edinburgh South West. He served as the Chancellor of the Exchequer from 2007 to 2010...
announced a temporary tax on bankers' bonuses, which required banks to pay 50% of all bonuses above £25,000 as a tax. This tax was equivalent to a 33.3% income tax. This tax was temporary and lasted only for one year, but some, including Ed Miliband
Ed Miliband
Edward Samuel Miliband is a British Labour Party politician, currently the Leader of the Labour Party and Leader of the Opposition...
, the leader of the Labour Party called upon the coalition government to extend this tax as a response to predictions that UK banks would pay out high levels of bonuses in 2011.
The Agreement
Project Merlin was announced on 9 February 2011 by Chancellor of the ExchequerChancellor of the Exchequer
The Chancellor of the Exchequer is the title held by the British Cabinet minister who is responsible for all economic and financial matters. Often simply called the Chancellor, the office-holder controls HM Treasury and plays a role akin to the posts of Minister of Finance or Secretary of the...
George Osborne
George Osborne
George Gideon Oliver Osborne, MP is a British Conservative politician. He is the Chancellor of the Exchequer of the United Kingdom, a role to which he was appointed in May 2010, and has been the Member of Parliament for Tatton since 2001.Osborne is part of the old Anglo-Irish aristocracy, known in...
. Under the agreement banks will lend about £190bn to businesses during 2011 - including £76bn to small firms - curb bonuses and reveal some salary details of their top earners. The Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
will monitor whether loans targets are being met. This was in addition to the government increasing its levy on banks to £2.5bn in 2011 - raising an extra £800m. HSBC
HSBC
HSBC Holdings plc is a global banking and financial services company headquartered in Canary Wharf, London, United Kingdom. it is the world's second-largest banking and financial services group and second-largest public company according to a composite measure by Forbes magazine...
, Barclays, Royal Bank of Scotland
Royal Bank of Scotland
The Royal Bank of Scotland Group is a British banking and insurance holding company in which the UK Government holds an 84% stake. This stake is held and managed through UK Financial Investments Limited, whose voting rights are limited to 75% in order for the bank to retain its listing on the...
(RBS) and Lloyds Banking Group have signed up to the Project Merlin agreement, while Santander
Santander
-People:*Francisco de Paula Santander , a Colombian military and political leader born in Cúcuta*Kike Santander , a Colombian composer and record producer born in Santiago de Cali...
has agreed to the lending parts of the deal. Other pledges include providing £200m of capital for David Cameron's Big Society
Big Society
The Big Society was the flagship policy idea of the 2010 UK Conservative Party general election manifesto. It now forms part of the legislative programme of the Conservative – Liberal Democrat Coalition Agreement. The aim is "to create a climate that empowers local people and communities, building...
Bank, which is intended to finance community projects.
Reaction
Although there were some positive statements, initial overall reaction to the announcement of the deal was sceptical. One of those to welcome the deal was Angela KnightAngela Knight
Angela Ann Knight is the Chief Executive of the British Bankers' Association . She was formerly a Conservative Party Member of Parliament representing the constituency of Erewash from 1992–97, and served as the Economic Secretary to the Treasury from 1995–97.-Early life:Born in Sheffield, Knight...
, chief executive of the British Bankers Association, who said, "This is an unprecedented set of statements from Britain’s big four lending banks. There has been a determination to work together and that is shown by what we have seen here." But the Engineering Employers Federation, the trade body which represents manufacturers in the United Kingdom said, "Industry will feel today’s statement on Bank lending did not go nearly far enough. The new targets may lead to some increase in lending to SMEs, but the track record of previous agreements is not a good one. [...] Today's statement left untouched the key issues of lack of competition amongst the Banks, insufficient transparency in lending decisions and the lack of understanding of its customers. Until these issues are resolved, access to finance will remain the weak link in the government's strategy for growth."
Ed Balls
Ed Balls
Edward Michael Balls, known as Ed Balls, is a British Labour politician, who has been a Member of Parliament since 2005, currently for Morley and Outwood, and is the current Shadow Chancellor of the Exchequer....
, the Shadow Chancellor
Shadow Chancellor of the Exchequer
The Shadow Chancellor of the Exchequer in the British Parliamentary system is the member of the Shadow Cabinet who is responsible for shadowing the Chancellor of the Exchequer. The title is in the gift of the Leader of the Opposition but is informal. The Shadow Chancellor has no constitutional...
, criticised the deal as "toothless" and suggested that it contained a "clear get-out clause which allows the banks to do whatever they wish to enhance the interests of their shareholders.". British Liberal Democrat
Liberal Democrats
The Liberal Democrats are a social liberal political party in the United Kingdom which supports constitutional and electoral reform, progressive taxation, wealth taxation, human rights laws, cultural liberalism, banking reform and civil liberties .The party was formed in 1988 by a merger of the...
peer Lord Oakeshott
Matthew Oakeshott, Baron Oakeshott of Seagrove Bay
Matthew Alan Oakeshott, Baron Oakeshott of Seagrove Bay , is a British Liberal Democrat politician.-Education:Oakeshott was educated at Charterhouse School, a co-educational independent school in Godalming in Surrey, followed by University College at the University of Oxford, from which he...
resigned as a Treasury
HM Treasury
HM Treasury, in full Her Majesty's Treasury, informally The Treasury, is the United Kingdom government department responsible for developing and executing the British government's public finance policy and economic policy...
spokesman in the House of Lords
House of Lords
The House of Lords is the upper house of the Parliament of the United Kingdom. Like the House of Commons, it meets in the Palace of Westminster....
after making an outspoken attack on the agreement. He dismissed it as "pitiful", saying officials at the Treasury "couldn't negotiate their way out of a paper bag. [...] If this is robust action on bank bonuses then my name's Bob Diamond
Robert Diamond
Robert Edward "Bob" Diamond, Jr. is an American banker, currently Group Chief Executive of British bank, Barclays Plc. He is also Chief Executive of Corporate & Investment Banking and Wealth Management, comprising Barclays Capital, Barclays Corporate and Barclays Bank...
[the boss of Barclays Bank] and I’m going to claim my £9m bonus next week.". Danny Alexander
Danny Alexander
Daniel Grian Alexander is a British Liberal Democrat politician who has been Chief Secretary to the Treasury since 2010. He has been the Member of Parliament for the Inverness, Nairn, Badenoch & Strathspey constituency since 2005....
, the Lib Dem Chief Secretary to the Treasury
Chief Secretary to the Treasury
The Chief Secretary to the Treasury is the third most senior ministerial position in HM Treasury, after the Prime Minister and the Chancellor of the Exchequer . In recent years, the office holder has usually been given a junior position in the British Cabinet...
later said that Oakeshott had resigned "by mutual agreement".