Banks should store cash this winter rather than pay staff bonuses, George Osborne has said.
The Chancellor urged bosses to plan ahead amid the eurozone crisis instead of rewarding bankers.
He said: "What we have got to do is make sure our banks are prepared for whatever is thrown at them in the coming months, not that they pay out these large bonuses that used to be paid out."
Treasury Select Committee chairman, Tory MP Andrew Tyrie, said Bank of England Governor Sir Mervyn King had called on banks to cut bonuses and shareholder dividends so they could boost funds and lend to small businesses.
Ministers have urged institutions to lend money to firms, but bosses insist they need to build balance sheets by retaining spare cash.
Mr Tyrie added: "Major banks argue they can't be expected to strengthen their balance sheets and increase net lending at the same time."
Speaking at Treasury questions in the Commons, Mr Osborne praised work by the Bank of England's financial policy committee, a body set up by the Government to offer advice on issues affecting the financial system.
He said it was "absolutely right to say to banks they should be using any earnings they have to strengthen their balance sheets if necessary, rather than distribute those earnings in larger bonuses".
He added: "We need stronger banks not larger bonuses this winter.
"The advice from the Bank of England is very clear and I would expect the banking system to follow that advice."