The US Treasury today pledged to clamp down on “excessive” executive pay as part a $250 billion banking package aimed at rescuing the country’s financial system.

America’s scheme, where it will invest in nine US banks in exchange for preferred shares, echoes a package unveiled by Gordon Brown yesterday, which also detailed proposals to buy stakes in leading lenders as well as curbing “fat cat” pay deals.

The US Treasury said that it would keep a close eye on the pay and bonuses of senior executives at the firms participating in the American infusion programme. It said banks must ensure that senior compensation does not “encourage unnecessary and excessive risks that threaten the value of the financial institution.”

The US Government also said it may take back bonuses at a future date if the bank underperforms and banned so-called golden parachute payments – a severance agreement that offers a payout in the event of sudden dismissal - to senior executives.

The Treasury indicated it still plans to buy up toxic assets, and said any firm participating in this program at a level above $300 million would also have to limit executive pay.

Richard Fuld, chairman and chief executive of Lehman Brothers, the collapsed US investment bank, recently caused outrage when it emerged he had received $300 million in pay and bonuses during his eight years at the helm.

Last year, a number of high profile US banking chiefs “retired” and were granted large pay packages despite their company’s writing off billions of dollars worth of sub-prime debt.

Chuck Prince, who left Citigroup, walked away with $100 million while Stan O’Neal, former chief at Merrill Lynch, left with a pay package worth $161 million.

The nine biggest banks that will receive government cash infusions are Citigroup, Goldman Sachs, Morgan Stanley, Wells Fargo, JPMorgan Chase, Bank of America, Merrill Lynch, State Street and Bank of New York Mellon Corp.

The Dow Jones industrial average rose by over 360 points after details of the bailout plan emerged. By lunchtime today, after a fall in early morning trading, stock had risen slightly by 24.53 points at 9,412.14.

Hank Paulson, the US Treasury Secretary, said that he regretted having to resort to the actions, but said it is "what we must do to restore confidence in our financial system".

Ben Bernanke, chairman of the US Federal Reserve, said: "As Americans well know, the challenge evident in the financial markets and in the economy are large and complex, but I believe that the steps taken today will help us overcome them."

Commenting on today’s plan, Stephen Schwarzman, chief executive of Blackstone, one of the world’s largest buyout firms, said: "We will be looking today to an absolute sea change in the global financial system in terms of liquidity."

He added that the move could be the action "that breaks the back of the credit crisis".

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