Royal Bank of Scotland is bracing for a costly court battle with shareholders that is to see former boss Fred Goodwin defend his role in the lender's near collapse during the financial crisis.

The City regulator today defended its decision to take no action against bosses at part-nationalised Royal Bank of Scotland (RBS), but said new rules were needed to punish bankers who take too many risks.

The former boss of Royal Bank of Scotland’s investment banking business has been banned from ever holding a senior role in the City again, it was announced today.