Sir Philip Hampton, chairman of RBS, told ITV's Daybreak that bonuses were necessary to attract the best workers to the bank – but admitted that the payments were still “huge”.
RBS today announced pre-tax losses of £5.16 billion for 2012, but still paid out £607 million in bonuses.
Sir Philip said: “The bonus question has been toxic for everybody, it’s been difficult for banks to deal with - but bonus rates have been falling very substantially.
“Our bonuses now in our markets business, where all the big bonuses are, are 25%, a quarter of what they were, four or five years ago."
He added: “They’re still huge… but bonuses are falling. It’s a very difficult, competitive market place. If you don’t pay what you need to pay, you don’t get the best people.
“It is tough to swallow but slowly but surely those bonus levels are falling.
“My personal view is that they will continue to fall and eventually they will be driven by market fundamentals and people over a period of time can’t get more than they earn.”