The atmosphere has surely gone from spending to cutting. The Budget introduced this week called for a 25 per cent cut in spending. Banks, due to the past practices, are under high scrutiny to tighten up as well. The Bank of England and the Financial Services Authority pushed banks to cut back bonuses and cut dividends last year. Now they have been told that more needs to be done to gain strength and sustain lending.

"This would require banks to double their efforts to contain discretionary distributions to shareholders and staff," the Bank said in its Financial Stability Report. "The benefits of more concerted action are potentially considerable." It said for every £10bn saved "around £50bn of new UK lending could be sustained".

They want lenders to constrain ratios to pre-crisis levels and limit dividend payouts to the levels seen in 2009. Salaries and bonuses need to come into line with the present economy as well. While the salaries and bonuses were cut 2 per cent from 30 percent to 26 per cent in 2008 to 2009, the ratio of 26 per cent is still above the average of 23 per cent seen between 2005 and 2007.

Public sector workers are in a two-year pay freeze, while salaries have doubled in some roles within Barclays and the Royal Bank of Scotland. This fall new rules on capital and liquidity will be revealed. It is expected that the new rules will take place in phases in over a five year period. But despite the new rules, authorities want banks to be more aggressive when it comes to restraints on bonuses.

The situation was brought up in a letter yesterday by Stephen Green, chairman of HSBC and the British Bankers' Association, to David Cameron. Mr. Green wants the Prime Minister to apply pressure for "properly calibrated changes which take account of the need for measures to be phased in over a suitable period of time" at this week's G20 meeting in Toronto, Canada. Green is also calling for a pay raise stall because lenders face a tremendous and expensive task of refinancing in the future that could effect and reduce lending to businesses and households. Due to cuts in the budget, banks must find funding to replace £800bn. During the crisis emergency funds were provided in the amount of £285bn, and while the industry has asked for an extension the Bank has said no. Instead they want them to grasp the reality of the economy, swallow the costs and pay up.