Bonuses for bankers should be capped at £2,500 a year while board directors in financial institutions should never earn extra payouts, the Lib Dems say.
A “top-to-toe” overhaul of the British banking system was needed, with an end to “morally obscene” salaries and bonuses, party leader Nick Clegg added.
He unveiled five proposals to control “the bonus culture” in the City.
There should be “no rewards for failure”, Mr Clegg said, calling for banks to display “total transparency”.
“The problem started with the banks so the solution must start with the banks too,” he said at the party’s daily news conference on Tuesday.
And he said the public should feel that “never again are your everyday savings held hostage” by “obscene” people in the City.
The Liberal Democrats’ five-point plan to reform the banking system would:
These five steps would “transform the culture of greed which continues to disfigure the banking industry in this country” and ensure the banking system became “the servant, not the master”, Mr Clegg said.
The party’s Treasury spokesman, Vince Cable, said the UK was “still in a major economic disaster”.
“The country is now poorer than it was before the banking crash and what we need to be focusing on is how we… prevent it happening again.
Nick Clegg said Lib Dem measures would transform the ”culture of greed” in the banking system
“An important part of that issue is how we deal with bonuses.”
Earlier Mr Clegg had refused to rule out the Liberal Democrats joining a coalition government under Gordon Brown or David Cameron, but said he would not back the Conservatives’ spending cut plans.
If there was a hung parliament, “politicians will need to speak to each other to give the stable… reasoned, sane government that people deserve”, he told the BBC’s Jeremy Paxman.
The election, due to be held on 6 May, was “wide open”, he added.
The Liberal Democrats are due to publish their manifesto on Wednesday.
Mr Clegg said it would reveal a “new approach” to a financially-stable economy, based on equity not debt, “where we learn as a country to build things again, not just bet on things on computer screens in the City”.