Split RBS into a 'good' and 'bad' bank now urges Bank Governor Mervyn King as he slams current system as a 'nonsense'Taxpayers will have to bear the costs of reprivatisation, King warnsRBS is currently holding the wider economy back, the Governor saidCriticisms come just days after RBS boss Stephen Hester said plans to return to the private sector were on track

from 1.8 billion in 2011.

But bottom-line figures revealed the fifth year of losses since its 45.5 billion government bailout in 2008, plunging into the red by 5.2 billion in 2012.

The Bank also hit out at European Union plans to impose a cap on banker bonuses, warning they will fail to rein in excessive pay and will only force up fixed salaries that cannot be clawed back.

Proposals revealed last week to limit bonuses to a maximum of a year's salary or double that if explicitly backed by shareholders, will act as a ‘distraction’ to efforts to change the culture of pay within the banking industry, according to Sir Mervyn.

Andrew Bailey, incoming deputy governor at the Bank and chief executive designate of the new Prudential Regulation Authority, added it could set back recent progress made to reduce overall bonus pools, defer awards and introduce clawbacks of past bonuses.

‘My concern is that in setting this limit, it runs the risk of pushing up fixed remuneration – that's cash out of the door and it's much harder to get that back if needed,’ said Mr Bailey.

Listen to Mervyn King's criticism of RBS

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