The City watchdog has insisted on vetting new bank directors, amid concerns that a lack of expertise in boardrooms contributed to the financial crisis. The Financial Services Authority (FSA) recently abandoned its rubber-stamping approach and insisted on face-to-face interviews with all new bank directors, The Times has learnt.

The need for extra vigilance by the FSA came as the 50 directors of HBOS, Royal Bank of Scotland (RBS) and Barclays – the banks regarded as most likely to tap the Government for capital injections - found themselves under growing scrutiny.

The three banks’ boards were paid almost £17 million last year, despite overseeing billions of pounds of write-downs on structured credit products. Yesterday the Government offered to spend up to £50 billion buying preference shares or other stakes in banks to help them to recapitalise after the losses. As a result, shareholders are likely to see their dividends cut.

The UK Shareholders’ Association, which represents retail shareholders, called for the boards of British banks participating in the recapitalisation to accept cuts to their basic pay.

Roger Lawson, director, said: “We’d like to see people who followed risky strategies and got us into this mess - particularly nonexecutive directors who didn’t make sure they understood what their companies were doing - share the pain. Shareholders would particularly like to see the chief executive and chairman of Royal Bank of Scotland [RBS] depart in due course.”

RBS said it would take part in “certain” elements of the recapitalisation programme. The Scottish bank is thought to need about £4 billion to boost its Tier 1 ratio - a measure of banks’ financial strength – to 10 per cent, as demanded by the Government.

RBS’s decision to tap the Government for cash is certain to increase pressure on Sir Fred Goodwin, its chief executive, and possibly Sir Tom McKillop, its chairman, to resign. Shareholders are angry that the bank led a €71 billion (£56 billion) consortium takeover of ABN Amro, the Dutch bank, at the top of the market, seriously depleting its balance sheet. Barclays, which needs about £3 billion to hit 10 per cent, also said that it would participate in the government programme “in ways which will protect the interests of our shareholders”. If the bank does issue new preference shares, it is likely to offer shareholders a chance to buy in as well.

John Varley, chief executive of Barclays, denied accusations that British banks had taken excessive risks, saying: “We haven’t been on a reckless binge of lending.” The overwhelming majority of credit card customers and loan borrowers were, he said, repaying on time.

Denying that the recapitalisation was a bailout, Mr Varley said: “The Government isn’t giving this away; they’re ensuring that the taxpayer is appropriately rewarded. This will no doubt be characterised as a bailing out of the banks and bankers who have been well paid, benefiting from taxpayers’ money, but that would be incorrect. This is a fundamental support of the financial system.”

HBOS, the bank being bought by Lloyds TSB, is thought to need at least £7 billion to hit a 10 per cent Tier 1 target. It is expected to sell a stake to the Government in order to raise cash.

HSBC, Abbey, which is owned by Santander, the Spanish bank, and Standard Chartered said yesterday that they would not accept the Government’s offer. Lloyds TSB and Nationwide were considering the proposal.

The total rescue package put forward by the Government yesterday is worth £500 billion. The FSA’s policy change on directors is a result of the Northern Rock fiasco last September, where the shortage of banking experience on the board was seen as one reason for the bank’s overreliance on wholesale funding, the factor that led to its calamitous collapse and subsequent nationalisation. Until recently, banks hiring new directors simply had to fill in a form and send it to the FSA. There was no known example of the regulator ever questioning the suitability of any candidate.

Peter Waine, a director at Hanson Green, a specialist recruiter of nonexecutive directors, said that bank boards were often poorly structured: “They’re not the best exponents of corporate governance. Their boards are much too large; they can have seven to ten nonexecs, which means that they end up having two tiers - one lot of nonexecs in the inner sanctum and those on the edge.” A Deloitte survey found that the median pay for a FTSE 100 nonexecutive was £58,675 a year.

Separately, bonuses, which are under extraordinary scrutiny from politicians seeking a credit-crunch scapegoat, will more than halve this year and are unlikely to return to previous heights, according to the Centre for Economics and Business Research (CEBR).

The total bonus payout this year will fall by more than 60 per cent from its peak to £3.6 billion and will drop again next year, the CEBR forecast. It reckoned that financial services firms would pay £2.8 billion to their best-performing staff next year, a fall of 70 per cent from 2006, a record year in which £8.8 billion was paid.

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