The City bonus culture was a major contributor to the financial crisis, according to the Treasury select committee.
An MPs group has laid much of the blame for the credit crunch - and the economic downturn - at City bankers.
The Treasury select committee, chaired by John McFall MP, said that a "lethal combination" of risk-taking and recklessness resulted from "bonus-driven" pay. It was claimed that bankers prioritised short-term profits - and big bonuses - over financial stability in the run-up to the crisis.
Seven-figure annual payments on top of salaries were commonplace among top bank executives prior to the onset of the credit crunch in mid-2007. However, with the freezing of the debt markets that came with the crisis, the precariousness of many banks' balance sheets were quickly exposed.
Two UK financial firms, Northern Rock and Bradford & Bingley, have been nationalised entirely as a result of the crisis. A further three, RBS, Lloyds TSB and HBOS - with the latter two combining into the Lloyds Banking Group earlier this year - have been given public money in emergency government bailouts.
The huge costs of the crisis - which will contribute to the government building up a debt of £175 billion this year, after tipping the UK in what looks likely to be its worst recession in decades - has led to the committee's investigation and the release of three reports so far.
In the latest update, Mr McFall said: "The design of bonus schemes was not aligned with the interests of shareholders and the long-term sustainability of the banks and has proved to be fundamentally flawed. Our report outlines clear failings in the remuneration committees within the banking sector, with non-executive directors all too willing to sanction the ratcheting up of senior managers' pay, whilst setting relatively undemanding performance targets."
The report also criticised the actions of the City regulator, the Financial Services Authority - and said that it needed to be tougher on the bankers going forward.
