Secret talks between a number of the UK’s major banks, which are said to include plans to provide £1.5bn to the Big Society Bank, have broken down, the Sunday Telegraph has reported.

Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Santander UK were rumoured to be involved in Project Merlin, as the action was code-named, to discuss ways to u-turn the banking sector’s image crisis. On the table was the possibility of reducing the industry’s £7bn annual bonus payouts for staff to £4bn and to furnish the Big Society Bank with up to £1.5bn of these savings.

But the Sunday Telegraph reports that talks have ended without a “definitive pact” because of tensions between those directly involved in discussions, and those on the fringes over what the project’s aims should be.

The Big Society Bank is to launch in April next year with an estimated £60m, providing financial products and services for the sector. When announced, the Cabinet Office advised that the amount of funds available would be determined by the number of banks and building societies participating in the scheme. Until Project Merlin rumours were revealed, dormant accounts were said to be the largest likely contributor, set to provide between £300 and £400m of funding.

Nesta kept out of the loop

Project Merlin was headed by outgoing Barclay's Bank boss John Varley. It is reported that the original basis of the talks was to produce a "clearing of air" between banks and the government. But a spokesperson for the National Endowment for Science, Technology and the Arts (Nesta), which was appointed by the government to pilot products and services for the Big Society Bank, as well as determine the appetite for investment in the Bank, advised that it has not been directly consulted or involved in Project Merlin. 

Some had hoped that the talks would produce dramatic results for civil society organisations. Lord Myners, trustee of the Tate and Glyndebourne and business secretary under the Labour government said in a statement to the Guardian last week that, "Banks should show they are committed to rebuilding their reputation and public trust by offering the entire charity sector completely free banking, as part of Project Merlin."

The Cabinet Office meanwhile remains sheepish about the amount of funding potentially lost in the breakdown of discussions. A spokesperson for the Office said: "As with all major industries, we are in disucssions with the banking sector on a number of topics but it would be inappropriate to provide a running commentary of our conversations," adding that the figure of £1.5bn was, "just speculation, it's not a figure we've ever released and discussions are ongoing."