The banks have been urged by a Treasury minister to restore their reputation by reforming the way that they pay bonuses.

Addressing the British Bankers' Association, Financial Secretary Mark Hoban issued a pointed reminder that the forthcoming bonus season would be taking place at a time of pay restraint across the rest of the economy.

He confirmed that the Government was still looking at the options for levying a financial activities tax on the banks' remuneration and profits.

But he appealed to the bankers to take the lead to show the public that they were capable of reform themselves following their bail-out by the taxpayer in the wake of the global financial crisis.

"A key way of regaining public trust will be by reforming the system of remuneration," he said.

"We have the opportunity to send a clear message to the public that the banking system now operates in a way that is fair and stable and no longer rewards employees based on short-term performance whilst leaving investors and taxpayers exposed to the long-term risks.

"It is better for the industry to lead these changes."

He said that both the public and private sectors had had to show "significant pay restraint" since the recession.

"I don't need to tell you that the next bonus round will be conducted against a background of continued pressure in the private sector," he said.

"And by visibly reforming the way they operate, banks can show that they exist to serve the whole economy, not just their own interests. By grasping the opportunity of reform, the banking sector can start a new chapter, one based on the principles of transparency, resilience and stability."