You know those odious L'Oréal advertisements, in which a woman swings her impossibly glossy hair, pouts at the camera and says breathily, "Because I'm worth it"? They always make me cringe. So does the sight of the bouffant-haired Bob Diamond, chief executive of Barclays, trying to justify his £9m bonus. He thinks he's worth it; and so do all his colleagues and rivals.

Banking has turned into a business in which people determine their self-worth exclusively by how much they are paid. It wasn't always thus. In the old-fashioned City, before the Big Bang of the 1980s, there were codes of honour and there was gentlemanly regulation. The job didn't demand everything from you, so you didn't demand everything, financially, from it. There was no Faustian pact in which a bank bought all your waking hours, your family life and your moral compass in return for a vast payslip.

In other walks of life, people can take pride in their work without expecting to earn huge salaries. They feel good about themselves because of what they do, not what they are paid. And they take satisfaction from contributing to the public good as well as their employer's profits.

None of that applies in banking, which has been reduced to a narrow calculus of profit and bonus. It is this blinkered view of the world that has made bankers unable to understand why they have to change. They live in a parallel, self-perpetuating universe in which they meet very few people outside their tiny circle. They work so hard that they rarely have time to socialise, and when they do, it is with other stratospherically rich bankers and lawyers. Their views all reinforce each others'. And the few outsiders they do encounter, they tend to disdain – usually because they have less money.

Bankers are used to getting their own way: individually, because they can wield a chequebook, and collectively, because of the importance of their sector to the economy. But what they don't seem to understand is how the balance of power is shifting. Politicians and regulators are fed up with being blackmailed. These days, when a bank threatens to move its domicile, ministers shrug. "It's just crying wolf," said one to me yesterday, after reports that HSBC might move to Hong Kong.

Mervyn King's trenchant criticism of the banks in an interview on Friday was echoed by Nick Clegg on Saturday. Both want to see a structural reform of the banking system that prevents the taxpayer's guarantee for retail depositors being used as an implicit subsidy for risky investment banking. Both want to see less focus on short-term profits and more on sustainable long-term banking. And King, in particular, would like to see a return to a moral dimension, which has been sadly lacking in recent years.

The bankers might think that – after last month's Merlin agreement with the Treasury – they have seen off the Government and stilled the public's anger. Not a bit of it. The agreement itself was pretty threadbare. The banks said only that they would pay less this year in bonuses than last year; by raising basic salaries instead, they have stuck two fingers up to the taxpayer. They have agreed to increase gross lending to small and medium-sized businesses, but that doesn't stop them calling in loans. Even Vince Cable, the Business Secretary, admitted last week that it was worth signing the agreement because "we shouldn't let the best be the enemy of the good". Some vote of confidence there.

But there is much, much more to come. The most critical sentence in the Merlin agreement was this: "Nothing in this statement, including references to a level playing field, pre-judges the outcomes of the Independent Commission on Banking [ICB]." It sounds innocuous, but it could determine the future not just of the financial system, but the whole economy.

The ICB was a critical part of the coalition agreement. Both parties came into government determined to protect the economy against another financial crisis by reforming the banks. How this should be done was delegated to an independent commission chaired by the Warden of All Souls College, Oxford, Sir John Vickers.

When ministers refer a big policy decision to an independent commission, you can tell what results they want to see by looking at its members. Sir John and his fellow commissioners are radical by nature and independent in spirit, and most had already spoken out on the need to reform the banks before they were appointed.

Contrary to some reports, there is no great divide in government. We all know that Clegg and Cable are hostile to the banks. But even if George Osborne is less openly critical, he still helped to choose the chairman and members of the commission and is happy with the direction in which it is heading. Osborne is also putting the Bank of England back in charge of supervising individual banks and the whole financial system. He wouldn't have done that if he disagreed with the Governor's analysis of the need for reform.

The ICB will come out with its broad conclusions next month. There will then be five months of consultation before the final report is published in September. Obviously, ministers won't commit to enacting it in full until they have seen the proposals, but one told me yesterday, "It's difficult to envisage the circumstances in which we wouldn't."

It's not a question of taking revenge on the banks that caused the financial crisis. There is an urgent need to protect the economy from the fall-out of another disaster. The last one sliced 5-10 per cent off our GDP, a calamitous outcome for which we are all now paying, however prudently we behaved before the crash. And Britain is desperately vulnerable: our banks' total assets are around five times the size of our whole economy, putting us behind only Iceland, Ireland and Switzerland. In the US and much of continental Europe, the banks are only a fifth of that size, in relative terms. So we literally can't afford another crash.

British banks will have to build up their capital reserves, to a much higher level than the recent Basel III agreement recommends. They will also need separate balance sheets for their high street and investment banking subsidiaries so that the taxpayer guarantee is not subsidising their "casino" activities. Of course they are arguing vociferously against this, because they have done very nicely out of the taxpayer so far. But that is no reason to give in to them.

If the bankers had been conspicuously successful, they might perhaps have been "worth" their bonuses. And we might be giving more weight to their arguments now. As it is, they have been conspicuous failures, and they have dragged the whole country down with them. We can't let that happen again.

As MervynKing said in a speech in New York last autumn: "Of all the many ways of organising banking, the worst is the one we have today. Change is, I believe, inevitable. The question is only whether we can think our way through to a better outcome before the next generation is damaged by a future and bigger crisis. This crisis has already left a legacy of debt to the next generation. We must not leave them the legacy of a fragile banking system too."

m.sieghart@independent.co.uk twitter.com/MASieghart