Osborne, giving his annual Mansion House speech, said he did not want “a quick sale of our RBS shares”.

However, he hinted that the government may yet opt to split the bank in two, after suggesting this should have happened under the previous government.

“With hindsight, I think splitting RBS into a good bank and a bad bank was probably what should have happened in 2008,” he said.

He went on to say he would “only sell our stake in RBS when we feel the bank is fully able to support our economy and when we get good value for you, the taxpayer”.

However, he stalled on when this would actually take place, claiming such a sale was some way off for RBS which was weighed down by loans issued in the boom which had gone bad and might take a long time to improve.

His comments come after the Banking Standards Commission said earlier yesterday that the state of RBS, and its continued ownership by the government, “created serious problems for the UK economy”.

It said it was time to look afresh at the timetable for returning RBS to the private sector.

Elsewhere, Osborne used his speech to the City to announce the government is preparing to sell its stake in Lloyds back to private investors.

In a widely expected announcement, Osborne said Lloyds – 39%-owned by the government – was in a good position and investor interest was growing.

Lloyds is already planning to float 631 branches under the TSB brand at some point next year.

Osborne said that Lloyds shares were “trading at around the price where selling would reduce the national debt” and said he was actively considering options for sales of Lloyds shares.

However, he said he had no pre-fixed timescale or method of disposal.

The Chancellor’s speech echoes the findings made by the Banking Standards Commission earlier on Wednesday, which said that Lloyds was better placed to return to the private sector and that RBS could be split into two.