George Osborne has risked public controversy by starting the process to break up the Royal Bank of Scotland early in order to avoid tough EU rules, such as a £471,000 executive pay cap.
The Chancellor filed papers in July informing the European Commission of his plans to split RBS into a "good bank" and "bad bank", which could involve extra state funding, just days before the new EU rules for state-backed banks came into effect. The government currently has a stake of around 80% in the bank.
Senior executives at state-backed banks cannot earn more than 15 times the national average salary or 10 times the wages of the average bank staff member under the EU's new rules. If the rules came into effect, new RBS chief executive Ross McEwan would be forced to accept half of his current £1 million salary.
Osborne's latest move comes less than a fortnight after he lodged a legal challenge against the European Union's planned bank bonus cap.
Deborah Hargreaves, director at the High Pay Centre, an independent think-tank, told the Huffington Post UK: "The Chancellor is coming out again batting for the City, which I think goes against the majority of public opinion.
"Most people think if you’ve screwed up, executive pay should be restrained given that we are paying for their errors."
Hargreaves suggested that the Chancellor's move could be part of a strategy to "free up" banks' ability to pay executives' higher salaries in order to counter any EU bonus cap.