Gordon Brown has made moves to calm the growing tension between the Treasury and the board of the Royal Bank of Scotland (RBS) who are considering resigning if the government vetoes bonus payouts.
Such a move could force the bank into full public ownership.
However, the Prime Minister told a press conference that "every other country in the world is legislating to create new bonus procedures".
He added: "If we keep to a worldwide agreement, every major bank in the world will want to follow. That will mean no bank is being discriminated against."
Lawyers for RBS - which is currently 70% owned by the taxpayer - have advised its directors to quit if the Treasury puts the brakes on a rumoured £1.5 billion worth of bonuses. Last year the bank paid out £1 billion in bonuses, but the Treasury believes that this year's payouts should not be above this level in order to reflect the needs of shareholders.
A Treasury spokesman said: "As a major shareholder, UKFI needs to be satisfied that RBS's approach to remuneration is in keeping with the Financial Services Authority's code of practice. We expect other institutional shareholders will be equally concerned to ensure remuneration practices do not pose a risk to the stability of the organisation."
The investment banking division at RBS has been on strong form this year and is expected to deliver profits of around £6 billion. If the star performers cannot be rewarded financially, the bank fears a mass exodus of talent.
"Our agreed business plan requires us to operate commercially in competitive markets and this plan underpins the prospects of recovering value for taxpayers and shareholders alike," the bank said.
In a circular sent to shareholders ahead of its EGM on 15 December, the part-nationalised bank warns that harsh controls on its bonus pool could "adversely impact RBS's ability to attract and retain senior managers and other key employees".
It is claimed this would place it at a "significant competitive disadvantage" against its competitors. RBS told shareholders it would weaken its management's ability to deal with the "risks" facing it.
If RBS participates in the government's asset protection scheme, then the taxpayers stake will increase from 70% to 84%.
David Buik, economist at of BGC Partners, says that RBS would have to go into full public ownership if its board and "the backbone of the business" all resign. "RBS is a massive high street player - to go into public ownership could seriously restrict the ability for the economy to recover," he adds.
The news comes amid reports that rival Barclays is set to award its 22,000 strong team of investment bankers pay rises of up to 150% as it battles the bonus clampdown.
This will lift the cap on salaries at Barclays Capital from £120,000 to £300,000 - and the pay rises are expected to be backdated to June.
The bank is also likely to increase the size of its bonus pool this year compared to 2008 following a strong performance from the investment banking division.
City minister Lord Myners has warned that at least 5,000 UK bankers would earn more than £1 million this year unless action were taken.
However, Paul Mumford, senior fund manager at Cavendish Asset Management, says the "surprising" move by Barclays shows how competitive the fight for talent could become between banks.
On one hand workers are being squeezed by politically-charged moves on pay, while on the other banks independent of state support are in a strong position to offer more generous remuneration and head-hunt the best talent, he explains.
Mumford adds: "Such an outcome would be as damaging for taxpayers as it would be for shareholders. The quality of personnel attracted to our most beleaguered institutions would almost certainly fall as a result."