Royal Bank of Scotland: Demonisation of Goodwin bad for Britain, claims Stephen Hester

Mr Hester also admitted he had misjudged public outrage over his own £1 million bonus and said he had considered resigning.

The board had been “caught on the hop” by underestimating reaction to the payout, which he later waived.

Mr Hester acknowledged that bank bonuses were controversial but said RBS had not realised what a storm his award would create. He admitted banks had been guilty of “hubris” after 20 years of “unbridled expansion” leading up to the crash of 2008.

“I think in the case of the banking industry there was over-confidence and, with the benefit of hindsight, over-rewards,” he said.

He added that, while fairness in society was important, it should not be achieved by “cutting down success”.

“I believe strongly in issues to do with equality of opportunity. I believe in a progressive tax system – I have no problem in paying more tax,” he said.

However, he warned it was important not to “demonise” a sector which remained essential to the economy. Speaking about the removal of his predecessor’s title, he said: “Huge mistakes were made at RBS and in economic management all around the world by companies, countries and governments.”

But he said “personal vilification does not reflect well on the country”.

Mr Hester, chief executive of the 82 per cent state-owned bank, disclosed he had considered quitting amid the political storm but declined to say whether or not he had received any job offers that might have lured him away.

He did, however, say that he was committed to turning RBS into a winner and a bank in which investors would once again want to own shares.

“Can I win with RBS? As long as that is in the affirmative then what else I do is irrelevant,” he said. “I want to win with RBS.”

He said that dealing with the biggest balance sheet in the world was like a time-bomb that had to be defused and that removing £600 billion in assets was more than any bank or government had accomplished.

“We needed to rebuild the bank to compete successfully against others and to encourage people to buy our shares,” he said.

The bank had been forced to downsize, a process he regarded as the right one even though it meant the bank was “less global than we were”.

His policy towards selling assets such as an aircraft leasing business was that the bank had to decide what it was good at.

“If we do something we do it well, or we stop doing it,” he said.

But the row over his bonus overshadowed progress that had been made, including a rise in the share price from 9p when he took over in January 2009 to 29p currently. That represents a £20 billion boost to the bank’s market value, though it needs to hit 50p to break even on the £45bn the government injected to keep the bank afloat in 2008.

Mr Hester said that dealing with the political side of the job was “not my greatest speciality”, but emphasised that the job at RBS was made more difficult “because we have to do things that normal banks do not have to do”.

That included a £38bn bill for cleaning up the balance sheet mess created by the former management. This was bigger than the UK defence budget and included writing off bad debts, staff redundancies and selling unwanted businesses.

On the question of whether he would remain to see the task through, he said that, “I may not have the decision on that”, but said he had accepted the task of reviving RBS despite having a good job already.

“I took it because I am the sort of person who likes a professional challenge,” he said. But he had not expected the intensity of the row over his bonus. “Everyone was caught on the hop, including me,” he said.

Earlier in two radio interviews he said it would have been “indulgent for me to resign,” while admitting he had considered it.

Mr Hester said he decided to waive the bonus – which would have been paid in bank shares – because of the damage the row was doing to the bank itself. He admitted that it had taken its toll on him personally and that he had suffered some depressing moments.

While he had “great sympathy and understanding” for people concerned about the high rewards in the banking industry, such “societal issues” were ultimately a matter for politicians.

He said it was essential that RBS was able to recruit the best people to resolve the problems it had inherited from the former management and the events of recent days had made it harder.

He had to replace the whole senior management team of RBS and had taken that search around the world in order to attract the best people, he said.

He heaped praise on colleagues for doing a good job in “difficult conditions” and said they deserved recognition. He also said that the annual results later this month would reveal that the bank is ahead of the lending targets set under the Project Merlin agreement with the UK government and that its lending to small firms was almost equal to all the other banks put together.

However, he could not rule further erosion in jobs if conditions worsened. “All banks are affected by economic conditions. Recovery is slow and, therefore, bank recovery will be slow.

“So far we have kept on schedule, but there will be some headwinds.”