Royal Bank of Scotland (RBS) and Lloyds Banking Group are set to sell off hundreds of bank branches in response to demands by the European Union, it has been revealed.

The new measure is an attempt to introduce more competition in the banking sector.

The part-nationalised banks have been told to sell off areas of their business in response to pressure from Brussels, after receiving vast amounts of tax-payers money at the height of the credit crunch.

The government hopes the sales will generate competition on the high street as the economy continues to make a slow and uncertain recovery.

The selling off of the more profitable parts of Lloyds and RBS will, of course, go some way to paying off the government loan and clearing the debt to the tax payer.

RBS is set to sell some 318 branches, with Lloyds expected to lose over 600 over the next four years.

The latter has also decided to opt-out of the government's insurance scheme, instead choosing to raise £21 billion with a £13.5 billion rights issue and a £7.5 billion debt swap.

A £2.5 billion payment to the government will also have to be made to avoid joining the Government Asset Protection Scheme (GAPS), something RBS has declined to do.

RBS and Lloyds have also agreed to clamp down on bonuses in response to receiving £30 billion from the government.

Both banks have said their board members have agreed to defer bonuses for three years, while no-one earning over £39,000 will receive a bonus.