The Business Secretary’s remarks have inflamed his long-running row with George Osborne, the Chancellor, about the Government’s treatment of City banks.
The Coalition must impose “radical” change on the banks to prevent them making “excessive” profits and paying big bonuses, Mr Cable said.
Mr Cable, a Liberal Democrat, has previously called for a far-reaching change to put a new legal divide between traditional high street banking and City-based investment banking operations, something that would effectively split up big British banks including Barclays and RBS.
The Conservative Chancellor has taken a more cautious approach, suggesting some restrictions on banks’ trading operations using their own money and other changes that stop short of full separation.
Hoping to avoid a damaging row, the Coalition has put the issue to the Independent Commission on Banking.
The commission is still considering its advice to ministers, and Mr Osborne has publicly warned fellow ministers not to “pre-judge” its findings.
Despite that warning, Mr Cable used a television interview to make the case for “fundamental” reform of the relationship between retail and investment banking.
“There needs to be fundamental reform. There will have to be change and it will have to be radical,” he said. “It certainly needs to be fundamentally reformed.”
London-based banks will this year pay their City staff around £6 billion in pay and bonuses.
Mr Cable said that the bonuses were unacceptable because of the public support that had kept the financial sector from collapse in the 2008-9 crisis.
“They effectively have a state guarantee and that's what makes the enormous payments so offensive,” he said.
Mr Cable said that he wanted the banking commission to propose new rules that make the banks less profitable and less able to pay big bonuses.
“We should notice at the end of it is that banks are more competitive and that they're safer and that they're not making large excess profits which then fuel the bonus culture,” he said. “Those are the big changes that have got to happen.”
The Daily Telegraph last year revealed that Mr Cable had privately claimed to have a “nuclear weapon”, saying his resignation could collapse the Coalition.
One Coalition source said Mr Cable was “sailing very close to the wind” with his latest remarks.
Another source said his words “sound like a deliberate attempt to pick a fight” with Mr Osborne over banks.
Relations between Mr Cable and the Treasury are tense in the wake of last week’s “Project Merlin” deal on banks’ lending and bonuses.
The deal, hailed by Mr Osborne, was strongly criticised by Lord Oakeshott, a close Cable ally who was subsequently sacked as a Lib Dem Treasury spokesman.
Lord Oakeshott was regarded by many Conservatives as a spokesman for Mr Cable.
In his BBC interview yesterday, Mr Cable was half-hearted about the Merlin agreement, describing it as “a glass half full” deal. Lord Oakeshott “remains a good friend,” he said.