There will be no return to business as usual, Darling tells bankers

The Chancellor's warning came as he hinted that a deal with the banks over insuring their "toxic" assets was near.

He also suggested that he favoured increasing the powers of non-executive directors, and promised Edinburgh would remain an important financial services centre.

In an interview with The Scotsman Mr Darling made it clear that the recent deal with the banks over bonuses – where senior staff who contributed to their failures get nothing – was here to stay.

Asked if the banks had yet done enough to deal with the problem, he replied: "No, they need to do more. There has to be a realisation on the part of senior management of banks that they just can't go back to business as usual.

"To most people the payment of a bonus is something that is special. It rewards hard work or extra effort, or something out of the ordinary.

"Some of these banks got themselves into a position where a bonus was the same thing as a wage. Most people find that very difficult to understand."

However, the Chancellor added that there was a distinction to be made between executives and "your ordinary rank and file employee of the bank, many of whom are not terribly well paid".

In the recent clampdown on RBS pay, lower paid employees have kept their annual bonuses.

Mr Darling also hinted that negotiations on the Government's scheme to insure the banks "toxic" debts was near to conclusion.

A bank like RBS, due to report the biggest loss in British history next week, may have as much as 200 billion of these on its books.

With government insurance behind them, RBS and other banks would be required to increase their lending to businesses and individuals.

Mr Darling said the scheme, to be agreed "fairly soon", would provide a "backstop insurance for some of these so-called toxic assets". He said that the government needed to act because banks did not know the full extend of these liabilities as "what might have been good last month is not so good this month".

The Chancellor added: "There is common consent now ... unless you can get them out of the banks' balance sheets, the banks will continue to be reluctant to lend and that will hold back the recovery."

Mr Darling highlighted a review of corporate governance being carried out by Sir David Walker, which will look at the issue of the powers of part-time, non-executive directors over their full-time executives.

He said: "It is a general problem in all companies: how do you ensure that somebody's in here three days a month can sensibly hold a full-time chief executive to account?

"The answer has to be in a bank it is terribly important that they can hold them to account. The consequences of failing to do so can be catastrophic."

Giving non-executives more power could require legislation, Mr Darling said.

He added that a White Paper, to be published around the time of the Budget would look at the future of financial services. Mr Darling continued: "One of the issues is with the Bank of England having a statutory responsibility to maintain financial stability. We will look at measures requiring banks to hold more capital in the good times.

"They will be better prepared if times turn bad but also it means they won't be flooding the market with money, chasing after assets."

Pressed on whether RBS would remain as an independent bank based in Edinburgh, Mr Darling replied: "RBS will be here. RBS is one of the biggest banks in the world, if not the biggest. I believe that Edinburgh will maintain its place as one of Europe's major financial services centre."

Asked about speculation that new RBS chief executive Stephen Hester would eventually sell the bank once its fortunes were restored, he said: "At the moment, he is going through RBS to try to resolve some of its problems.

I am very confident in Edinburgh's future as a financial centre. It'll look different in some respects. They will be doing different things."