ROYAL Bank of Scotland wants to demonstrate that the days of multi-million-pound bonuses have been replaced by sackcloth and ashes.

It still has some way to go to make a convincing case. New figures show that, last year, as many as 95 RBS employees earned more than £1million. The number of staff in the RBS millionaires club has attracted understandable criticism and demands that executive pay should be capped to help build the bank's capital base. Chief executive Stephen Hester is keen to leave such criticism behind, but it is difficult when massive salaries are reported by a bank bailed out by the taxpayer and tarnished by reputational damage on other fronts. But RBS is making some progress. Total remuneration for executive directors and the top eight executives was 16% lower than in 2011, albeit still worth £21m. Since 2010, the total sum paid in bonuses has been reduced by more than 50%. Perhaps the most compelling evidence of a turnaround in the culture is in Mr Hester's refusal of both a bonus and a salary increase. His remuneration package is £1.646m.

This compares favourably with Barclays, where 428 staff were paid more than £1m last year and HSBC, where 204 high-risk staff received £1m pay packets.

The RBS figures will not, however, allay frustration at the continuing lack of access to mortgages and business loans, despite the promise of the Government's Funding for Lending scheme. The outgoing governor of the Bank of England, Sir Mervyn King, acknowledged this as a problem when he warned this week that constrained lending by RBS had macroeconomic consequences and advocated that the bank should be split in two and returned to the private sector within a year.

The fundamental questions about the future of the Royal Bank remain unresolved. Is the aim to return it to the private sector at as high a price as possible? If so, when rival banks are offering greater rewards, is there a risk the most successful deal makers will go elsewhere? Alternatively, as a state-owned body, should RBS be designed to direct funding to British industry? If so, that should be clarified as its purpose and the six-figure bonuses consigned to history.

This week's revelation that small building societies loaned more to home buyers and businesses, net of repayments, than either RBS or Lloyds confirms that the Government's attempt to direct investment through FfL does not wield a big enough stick where the big boys are concerned.

According to Sir Mervyn, bonuses are a symptom of a flawed system. The remuneration committee at RBS has taken some steps to address public anger at the bonus culture. But is this focusing treatment on the symptoms of a failed system rather than on its root causes? If the Melton Mowbray Building Society can outperform the might of RBS in providing the mortgages and loans the economy so desperately needs, a separation of the investment and high street functions of our big banks, and increased competition from a greater number of smaller institutions, looks increasingly like a promising way forward.