Sir Fred Goodwin's knighthood will be examined by a committee with the power to strip people of their honours, David Cameron said on Thursday.
MPs have previously called for former RBS boss Sir Fred to have his knighthood removed, after the bank had to be bailed-out with taxpayes' cash in 2008.
Taking questions after a speech on responsible capitalism, the prime minister said the forfeiture committee would "examine' the issue.
"I think it is right that there is a proper process to be followed for something of this order," Cameron told journalists.
"There is a Forfeiture Committee in terms of honours that exists and will now examine this issue.
"I think that it is right that it does so, it is right that there is a proper process.
"Obviously it ought to take into account the Financial Services Authority (FSA) report which I think is material and important because of what it says about the failures at RBS, who was responsible and all the rest of it.
"But there is a committee, they should do the work rather than the prime minister himself or herself."
Conservative MP Matthew Hancock told the Daily Mail: "The knighthood given to him by Gordon Brown is inappropriate for someone who was reckless at the helm of one of Scotland’s oldest institutions."
The Forfeiture Committee, composed of senior civil servants, normally removes honours when people are found to have committed a criminal act or are guilty of professional misconduct.
Robert Mugabe was stripped of his knighthood following a recommendation from the committee in 2008.
Cameron also disclosed that bonuses at RBS and Lloyds, banks which are still state owned, will be capped at £2,000.