The challenge for Bob Diamond, the American chief executive of Barclays, when he faced a grilling by MPs yesterday was to refrain from doing a little jig to celebrate the City's victory in the Battle of the Bonuses. Instead he slipped up in a different way by telling the MPs and their constituents that the time for "remorse and apology" from bankers is over.

Not in what MPs called "the real world" it isn't. That much was evident later in the day when George Osborne faced a grilling of his own over the coalition's failure to live up to its glib pre-election promises to cap bonuses.

The chancellor tried to blame the whole mess on the legacy he inherited from Labour – a formula which gets weaker by the day. But only about half the Tory MPs who questioned him, the toadying half, agreed.

The majority in all parties remain cross both about the scale of unwarranted bonuses and the unloved banks' collective failure to lend enough to stimulate recovery in both the housing market and the wider economy, not to mention excessive bank charges and other familiar moans. The response was the same when Diamond faced the Treasury select committee.

Apart from earning £75m in the past five years, the Barclays boss's problem was twofold. First, he was smug about his bank's performance during the ongoing crisis, insisting – quite wrongly, MPs pointed out – that prudent management had allowed it to avoid a taxpayer bailout. Actually no. The taxpayer's guarantee, as well as Arab oil money, is still propping it up.

In addition the "Houdini bank" was lucky not to beat RBS in a 2007 bidding war to buy the Dutch bank, ABN Amro (RBS's fatal error), and would have bought Lehman Brothers in 2008 if Alistair Darling hadn't blocked it. "Little England," sneered Diamond Bob in a leaked email. But it allowed him to buy the best of Lehman for peanuts after it crashed a few days later.

Second, he defended the banking status quo in the face of awkward facts. Break them up? No, the "integrated universal model" of bank (ie Barclays) is safest. At Baring Brothers' freestanding subsidiary in Singapore, rogue banker Nick Leeson had crashed the bank, he said. Nonsense. London had been pouring money into Singapore, said Andrea Leadsom, a sharp Tory ex-banker.

It was the same over bonuses (no, he would not promise to give up his own again) and tax havens, part of the Barclays Capital investment banking arm which Diamond ran before his latest promotion. How many subsidiaries had BarCap set up in the Isle of Man, asked Labour's Chuka Umunna? "I don't know." Thirty. Jersey? "I don't know." Thirty-eight. The Cayman Islands. "Same answer." 181.

This committee, under its cool-headed chairman, Tory Andrew Tyrie, is able to catch out slippery bankers. On TV and in the City press, pundits said that Diamond gave a "masterclass in deflation" but it wasn't so. He was unimpressively vague about who gets most of the bonuses. The investment bank elite, it seems.

Where Diamond scores over the politicians is that he and his kind hold most of the cards. As Osborne reminded MPs, the financial service sector pays 20% of all UK taxes and can take themselves abroad if pushed too hard. That was why the chancellor's combative retreat from his pre-6 May rhetoric won him catcalls.

Yes, Labour made mistakes, though most were endorsed by the Tories at the time. Yes, curbing the banks will be difficult. The coalition's crime was to pretend it would be easy.