BANK of England Governor Mark Carney has declared the "age of irresponsibility" in the banking sector over as he warned that City traders who abused the markets should face up to 10 years in jail.

His stark message came as George Osborne announced that the UK Government would "in the coming months" begin the long-awaited sell-off of the Royal Bank of Scotland.

But while he said British taxpayers would make an estimated £14 billion profit from the overall sale of the bailed-out banks, the Chancellor acknowledged the Edinburgh finance house - rescued in 2008 by a public bail-out of £46bn - would be sold back to the private sector at a loss; one economic think-tank put this at as much as £26bn.

Following a raft of market-rigging scandals, Mr Carney used the Governor's speech at the Mansion House in the City of London to set out plans for new rules for traders.

He warned that if left unchecked the markets were "prone to instability, excess and abuse", adding that poor infrastructure had lit "a powder keg in UK markets triggering the worst recession in our lifetime".

The Governor called for tough new sanctions with longer prison sentences for those who broke the rules.

He spoke as the Bank set out the final report of its Fair and Effective Markets Review, which has produced a series of recommendations to reform a system whose deficiencies allowed misconduct to take place.

"For the best in the business, this won't be new. This is just how you run your business. But for others, who free ride on your reputations: the age of irresponsibility is over," declared Mr Carney.

He said failings in market structures, standards, systems and incentives skewed to short-term returns, coupled with a "culture of impunity" in parts of the market had contributed to an "ethical drift".

The Bank chief also acknowledged the failings of central banks.

"Unethical behaviour went unchecked, proliferated and eventually became the norm. Too many participants felt neither responsible for the system nor recognised the full impact of their actions. For too many, the City stopped at its gates, though its influence extended far beyond."

His remarks have come in the wake of a series of banking scandals such as the manipulation of benchmark lending rate Libor and foreign exchange markets.

Mr Carney said fines of almost £100bn levied on global banks had translated to £1.9 trillion of reduced lending capacity to the real economy.

Meantime in his address at the Mansion House, Mr Osborne said that after receiving independent advice from the Bank as well as a review from Rothschild, a "decision point" had been reached and it was now in the interests of the taxpayer to begin selling the 79 per cent public stake in RBS back to the private sector.

This would begin, he explained, "in the coming months", starting with shares being sold to institutions. But, the Chancellor made clear, there was no reason ordinary investors should not be involved in due course. The full sale is expected to take several years to complete.

Rothschild said that, in the absence of unforeseen circumstances, taxpayers could "comfortably expect to secure proceeds from their interventions in the banks that exceed the money they put in"; this was estimated to be £14bn.

An estimated loss of £7.2bn to the taxpayer from RBS, if the UK Government sold its remaining shares in the bank in one go at the share price as at June 5, would be much more than offset by proceeds from other interventions, for example on shares in Lloyds, claimed the review.

Mr Osborne said: "In the coming months we will begin to sell our stake in RBS. It's the right thing to do for British businesses and British taxpayers.

"Yes, we may get a lower price than Labour paid for it but the longer we wait, the higher the price the whole economy will pay. And when you take the banks in total, we're making sure taxpayers get back billions more than they were forced to put in," he added.