City minister Lord Myners has been taken to task by MPs over his handling of former Royal Bank of Scotland boss Sir Fred Goodwin's controversial £703,000 pension.
The Treasury Select Committee's report on bank pay said Lord Myners should have given "a clearer, stronger direction" to RBS that there should be no rewards for failure at the bank.
Sir Fred's pension was boosted by the RBS board's decision to treat him as having retired at the request of the bank, making no reductions to the pension for early retirement.
Lord Myners said he had no knowledge of the discretion used by RBS in its treatment of Sir Fred - who has become a "highly visible emblem of bankers damaging the economy without themselves being penalised", according to MPs.
The committee said it did not believe Lord Myners' instruction to the RBS board represented "adequate oversight" and said the bank should not have been allowed to handle the pension negotiations on its own.
"The RBS board had shown itself to be incompetent in the management of the bank, steering it towards catastrophe, and also possibly dominated by Sir Fred; there were no grounds for trusting them with this operation.
"We suspect that Lord Myners' City background, and naivete as to the public perception of these matters, may have led him to place too much trust in the RBS board," the report said.
MPs added they believed it would have been open to Lord Myners "to insist that Sir Fred should be dismissed".
If Sir Fred had been fired he would have been entitled to a much smaller £416,000 a year pension from the age of 60, the report said. But the committee also made allowances for the pressure the Government was under last October amid frantic negotiations with major banks over the bail-out in crisis following the collapse of Lehman Brothers.
"Returning to the bigger picture, we accept that the Treasury's key responsibility was to support the banks at a time when markets were exceptionally jittery and when a grave systemic crisis was only hours away," it said.
