Banks are holding on tight to their cash, stoking fears that the credit crisis has a long ways to run yet.

The Financial Times reports that banks’ borrowing costs in the US, eurozone and the UK rose again even after the Fed’s recent attempt to bailout the banking sector by lending billions of dollars of taxpayers’ money against banks’ subprime-infected securities.

In London the three-month Libor rate — the rate charged by banks for lending to each other — was set yesterday at 5.995%, its highest of the year and 0.9 percentage points above the level investors demand for risk-free money.

“The banks and the markets sit back and expect the central bank to do whatever it takes,” says John Stepek in Money Morning UK.

“Perhaps if we’d allowed a few more of the past ‘crises’ to inflict some pain, we wouldn’t find ourselves in this situation now. As for what we can do – well, any bail out is still going to hurt. Japan didn’t let its banks go bankrupt, and look what happened there. I suspect we might be looking at a similar scenario in the West – let’s just hope we’re not still waiting for it to turn around in two decades’ time.”