The Government is donating £1m of money collected from FSA fines to the military charity Fisher House, according to The Sun.
The money comes as part of a £35m pot allocated to the armed forces by prime minister David Cameron during the Conservative party conference in October.
In the wake of the Libor rigging scandal, chancellor George Osborne ordered all FSA fines to be directed into the public purse instead of reducing industry fees.
The Sun reports that Cameron has set up a committee of senior ministers and charity officials to decide how to spend the remaining £34m.
Cameron says: “It took about two minutes for the chancellor and I to decide what we wanted to do with the money from bankers who have been misbehaving. We wanted to know what more we could do for the wonderful people who serve our country.”
Fisher House is set to use the extra money to build homes for military families so they can stay close to relatives in Birmingham’s Queen Elizabeth Hospital.