George Osborne has been accused of forcing regulators to ditch a review into Britain's banking culture under pressure from the industry's biggest names.
The Financial Conduct Authority (FCA) has announced it will instead "engage individually with firms to encourage their delivery of cultural change".
A focus on the culture in financial services firms remains a priority for the FCA.
MPs condemned the move with some pointing the finger at Mr Osborne for the decision.
Labour's John Mann, who sits on the Treasury select committee, said: "George Osborne is behind it, without any question.
"The cultural issues are what lays at the heart of the financial crisis. It's fundamental. Individuals took irrational risks with other people's money. This decision leaves us hugely exposed into the future because it allows the banks to continue to act as they acted before."
He added: "George Osborne is bowing to pressure from the banks. HSBC and Barclays have threatened to leave the country, that is what they are privately threatening."
Conservative Mark Garnier, who also sits on the committee, said he was "disappointed" by the decision.
He told BBC Radio 4's Today programme: "There has always been this great argument that perhaps the Treasury is having more influence over the regulator than perhaps it ought to and certainly, if I was looking for a Machiavellian plot behind what's happened here and the tone of the regulator, then I suppose I would start looking at the Treasury."
Meanwhile Liberal Democrat leader Tim Farron said any hope of change had been "dashed".
"The public are rightly fed up with the banking sector marking its own homework and cutting out anyone with a critical eye. Any hope of change and progress has been dashed, with a very clear return to businesses as usual," he said.
"Cosy decisions between the banks and politicians, and a toothless regulator, lead us to one of the biggest financial crashes in living memory. The high-risk players in the banks were left to gamble with public money, with little care for what may happen.
"When the banking sector faces trouble, British livelihoods are on the line. To do anything other than operate with complete transparency, and with proper checks and balances, will be reckless and will undermine public trust."