Stephen Hester, the chief executive of the Royal Bank of Scotland, criticised the decision to lift the ban on the short-selling of banking shares yesterday as he saw his own bank's price collapse by more than 66 per cent to only 11.6p.

Mr Hester insisted that he was not calling for the ban to be reimposed — arguing that that would lead to a “debate on flip-flopping” — but he told The Times: “I think the timing of lifting the ban was not the best, given the nervousness in the market.”

He said that the Treasury's decision to exchange the £5 billion-worth of RBS preference shares that it has held since October's bailout of the banking sector with ordinary shares — raising its stake in RBS from 58 per cent to 70 per cent — had left the bank uniquely vulnerable among its peers. “There is an assumption that shareholders are going to get diluted and we are most in the firing line as we are 70 per cent government-owned.”

His comments came as RBS said that it was set to report an annual loss of up to £28 billion, the biggest in British corporate history, of which about £15 billion-£20 billion will be in goodwill writedowns related to the 2007 takeover of ABN Amro, the Dutch bank.

Mr Hester said: “Clearly, we would not wish to be where we are and I don't think those are the sorts of records that any commercial enterprise is proud of. Most of the headline number is an accounting entry and simply highlights the way the external market's valuation of banking assets has changed.”

He admitted that Britain's banks had made mistakes, but he urged the public not to demonise banks or bankers. “I'm going to try and return banking to boredom and not use colourful adjectives. I think, at a time when there are lots of emotions running high, it's not necessary for me to add to that with adjectives. Clearly, people started making judgments on a view of the world being more positive than it turned out to be. It seems reasonable to apply criticism to those judgments, but none of us can be stoned too readily.

“Our job is to clean up RBS and make it strong again. We need to look forward and not back — although it is important for lessons to be learnt. Absolutely no one could have dreamt of, or forecast, the depths of dislocation which we have had.”

He said that in exchange for government support — a conversion of preference shares to ordinary shares will save £600 million a year in dividends - RBS has agreed to extend its commitment to lend to the UK economy.

Mr Hester said that in October the bank had committed to lending targets in the small business area and in mortgages and in 2008, helped by that support, it raised lending in both those areas by something like 10 per cent.

“We've now committed to extend that to larger corporates, where there's been increasing stress ... and have said we will add £6 billion in incremental lending.”

Guy Whittaker, the group finance director, said that RBS expected to break even in terms of operating profits, with profits in retail and commercial banking and in RBS Insurance offset by losses in its wholesale banking division.

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