Treasury chief George Osborne said Wednesday the top four banks have made a commitment to lend about 190 billion pounds ($305 billion) to businesses this year - up from 175 billion pounds previously - to support the faltering domestic economy.
The "Big Four" - Barclays, HSBC and part-nationalized lenders Royal Bank of Scotland and Lloyds - have also agreed to pay lower bonuses for 2010 than they doled out in 2009 and to provide more disclosure on senior executives' pay.
The deal follows a public outcry about the banks' role in the financial crisis, including past large bonus payouts and ongoing criticism that they are now hampering Britain's economic recovery by failing to lend to businesses.
It comes a day after Osborne hit the sector with an extra 800 million pounds in taxes, raising the government's bank levy to 2.5 billion pounds from 1.7 billion pounds.
But the Treasury chief struck a conciliatory tone as he outlined details of the government's so-called Project Merlin, perhaps heeding warnings from banks that excessive government interference would harm Britain's position as a global financial center.
"Anger and retribution will not bring one percentage point of economic growth or create one single new job," Osborne told lawmakers in the House of Commons.
"The anger will remain. And we must never make the same mistakes again," he said. "But Britain needs to move from retribution to recovery."
However, the deal did not appear to include any enforcement measures or penalties should the banks fail to follow through on their commitments and some critics said the 190 billion pound figure was essentially meaningless.
Banks have repeatedly argued that they have lent as much as demand requires and that they should be drawn into potentially risky relationships to fulfill a quota.
Ed Balls, the opposition Labour Party's treasury spokesman, said the deal was "vague, toothless and unenforceable."
Brendan Barber, the general secretary of the Trades Union Congress, which represents some 6 million workers, said the agreement "failed to live up to its low expectations."
"Banks will only act against their own commercial instincts if there is a credible threat," Barber said.
London's finance houses paid out some 11.5 billion pounds in bonuses, most of it in cash, four years ago. The new deal did not put a figure on the restrictions, apart from a limit of 2,000 pounds in upfront cash bonuses at part-government controlled RBS and Lloyds.
RBS later confirmed that its CEO Stephen Hester would receive a shares-only bonus of 2.04 million pounds for last year, while Lloyds will give its outgoing CEO Stephen Hester a shares-only bonus of 1.45 million pounds. All executive directors will receive bonuses only in shares and all will have to wait until 2013 to convert them into cash.
In a bid to increase transparency around pay, the Big Four have committed to disclose salary details of both executive board members and the top five highest paid executives not on the board.
The increase in lending includes a commitment to boost funds to strategically important small to medium businesses by 15 percent to 76 billion pounds.
Project Merlin also commits the banks to adding an extra 1.2 billion pounds to a new Business Growth Fund to invest in expanding small businesses that are deemed to be key in rebalancing Britain's economic future. That includes 200 million pounds for Prime Minister David Cameron's so-called Big Society Bank, which will help charities and voluntary groups take over the running of some public services.
Senior figures in the banking industry have been pressing for a shift from the "blame game" for some time.
Bob Diamond, the new Barclays CEO, told a parliamentary committee looking into the banking crisis last month that it was time to stop saying sorry and instead build some confidence, adding that Britain could not have successful banks without paying bonuses.
"There was a period of remorse and apology for banks," Diamond said. "I think that period is over."