Part-nationalised Lloyds Banking Group and Royal Bank of Scotland have had to agree to tough new rules on staff bonuses to secure the extra billions of Government support being pumped in.
The two banks will not pay discretionary cash bonuses to any staff earning above £39,000 for 2009.
The bonus ban also applies to high-earning investment bankers, who traditionally pick up substantial windfalls each year as part of their remuneration deals.
Lloyds and RBS have also agreed that senior executive board members will defer all 2009 bonuses for three years - including long-term incentives due - "to ensure that their remuneration is better aligned with the long-term performance of their banks", according to the Treasury.
The pay clampdown comes in line with wider reforms in remuneration across the international banking industry.
A G20 agreement on pay is seeking to stamp out excessive pay practices that have been widely blamed for playing a part in risk-taking that led to the financial crisis.
The international reforms are calling for claw-back clauses and three-year deferrals on up to 60% of bonuses paid to avoid rewards for future failure.
But the news that discretionary bonuses will be canned takes the pay changes a step further.
RBS has already put aside £1.79 billion in the first half of this year to cover staff expenses, including salaries and bonuses.
The recent rebound in stock markets has led to bumper investment banking hauls so far this year and the sector is estimated to be preparing to fork out a 50% hike in annual windfalls to £6 billion.
RBS, which has a substantial investment banking operation, said the bonus cap presented the bank with another hurdle, with remuneration key in the banking sector to attracting and retaining top staff.
Stephen Hester, chief executive of RBS, said the ban on bonuses was "one of the additional obstacles that makes our job of recovering money for the taxpayer more difficult... although I completely understand the rationale for it".
© 2012 The Press Association Limited
