This article was written by Vince Cable and appeared in today’s Mail on Sunday

Anyone who thought that the credit crunch and the banking crisis were over can think again. We are back to bonuses beyond the wildest dreams of someone on an average salary; there is a choking credit squeeze on many British companies and those who work in them; and the profitable big banks that are ‘too big to fail’ have a taxpayer guarantee if they mess up. As for the customers, including millions of small savers, they are just treated as an embarrassing nuisance.

The public might well ask why, just over a year after the banking system had a massive heart attack and was saved at great expense by the taxpayer, the patient is so detached from reality and decency.

For me, the key issue is the failure of the banks, and in particular the semi-nationalised RBS and Lloyds, to meet legally binding obligations to maintain a flow of funds – net lending – to the sound and solvent small and medium-sized companies on which the British economy depends.

Credit is central to business, providing working capital to expand. Yet overall bank lending to business, outside of property, fell by 16.2 per cent last year. We put £46billion into RBS and £23billion into Lloyds – £1,200 for every man, woman and child in the UK – to save our economy and enable them to lend. They failed and the Government has encouraged them to push up the share price instead.

The banks’ explanation is that many businesses are cutting back, repaying loans rather than taking out loans to expand. The truth is that the so-called low demand for loans is because RBS and other banks will supply only at very high interest and with demands for more security.

I am not arguing for a moment that money be handed out to all-comers. But unless good, viable companies can get credit, the recession and job losses will continue. The semi-nationalised banks have a legal as well as commercial obligation to help support the recovery of the British economy.

The problem is the banks, including the semi-nationalised ones, are under pressure to boost their share prices. In the case of RBS and Lloyds the reason is that the Government wants to sell off its shares quickly.

The attraction to the banks of building up investment banking is that it creates a honey pot of bonuses. RBS is portraying itself as a paragon of puritan virtue because it has paid out only 30 per cent of profits in investment banking – £1.3billion – in bonuses; this is in a bank making overall losses and paying bonuses out of taxpayers’ money. I gather that 100 staff have taken more than £1million each.

One of the villains of the banking crisis, John Mack, chairman of the giant and venerable but humbled US bank Morgan Stanley, acknowledged last week that: ‘I still don’t think the industry gets it.’ It doesn’t.

RBS tries to justify its own payments by saying that all the investment bank profit will make it easier to repay the taxpayer. But much of the trading activity is in the bonds to finance Government borrowing. So the taxpayer is paying out of one pocket to be repaid in another.

RBS then says that, if we don’t pay our people, they will all migrate to American banks or hedge funds. We can’t disregard this argument, though it remains to be demonstrated that the bank could not function effectively with staff whose demands were considerably more modest.

The world of football offers us some clue about how to deal with highly paid prima donnas. Paying up can buy success (Chelsea) but it can also lead to bankruptcy (Portsmouth). Sensibly managed clubs – Everton, Aston Villa, Fulham – can do well by producing home-grown talent and good teamwork.So what can be done about these spoilt financial superstars who threaten to burst into tears and jump out of the pram if they don’t earn a million a year? We should start with more transparency and disclosure. RBS won’t tell us who these millionaires are even though they are paid with public money. We have a right to know.

But this problem of extreme bonuses and pay can’t be tackled without dealing with the money-making machines – the investment banks – and the way in which they distort the whole purpose of financial services. The emphasis is on short-term speculation – the ‘casino’ function – so they continue to behave dangerously knowing they have a taxpayer guarantee.

Last week Mervyn King, governor of the Bank of England, argued strongly for the breaking up of the big banks, both to create more competition and to prevent the ‘casinos’ having this taxpayer guarantee. The rather pathetic response of the Government is that this is all very difficult and, anyway, we can’t do anything unless the rest of the world also acts.

The problem for Britain is that the banks are a far bigger part of the economy than they are in America, France and Germany. When they get into trouble and have to be rescued by the taxpayer, Britain suffers worst. This is one of the main reasons why Britain’s recession is so hard. Unless there is strong leadership and a change of direction, I fear that we will just drift into the next banking disaster. And that can’t be allowed to happen.

Liberal Democrat Shadow Chancellor, Vince Cable