In his first appearance in front of a Parliamentary inquiry since RBS was part-nationalised, Johnny Cameron, former investment banking chief, said Mr Goodwin had a "frank exchange of views" over the issue with colleagues as the bank teetered on the brink of collapse in 2008.
But Mr Cameron, the only RBS executive to have faced action from regulators after being barred from senior roles by the Financial Services Authority, said it had a "moral culture" during Mr Goodwin's tenure.
Mr Cameron, who left RBS in late 2008, played down how much the bank could have done to prevent the Libor problems.
He said the bank during his tenure had high standards. But he added: "You cannot impose moral standards on people who do not wish to be moral."
The inquiry, which yesterday heard from high-ranking figures from the bank, including chairman Sir Philip Hampton, was told the Libor-fixing problems were missed as the priority was bringing the bank back to life after its £45bn state bail-out.
RBS was last week fined £390 million by US and UK financial regulators after they found traders had rigged key interest rates well into 2011.
John Hourican, who took over the investment bank after Mr Cameron left but is departing after the scandal, said: "When we took control of the bank it had had a cardiac arrest. We had to prioritise dealing with the existential threat to the bank."
Mr Hourican, who was in post from 2008, added: "I am very sorry this happened on our watch."
He called on RBS staff not to "waste my death" by failing to reform further and said events should send a "cultural shudder down our organisation's spine". Mr Hourican said RBS may have got little benefit from the rigging and may have lost money.
Sir Philip denied Mr Hourican was a "human shield" and said the bank believed there should be a single point of accountability. So far 21 members of staff have been identified as being aware of the use of illegal "wash trades".
Sir Philip defended chief executive Stephen Hester's delayed bonus from 2010, when the Libor manipulation was still taking place, saying the bonus should be based on his full achievements. The chairman said Mr Hester, who receives a £1.2 mil- lion basic salary and has the potential to get five-and-a-half times that through various bonus and incentive schemes, is not well paid compared to his peers.
RBS will reveal the size of its bonus pool in the coming days but executives were unable to tell the commission how much it would have been without the reduction due to the Libor fine.
* Barclays may have misled shareholders after Manchester City owner Sheikh Mansour agreed to invest more than £3 billion in 2008. BBC's Panorama found the money, which helped the bank avoid a bailout, actually came from the Abu Dhabi Government.