James Moore: Why RBS is right to bank on an insider as it seeks its new man at the top

It seems Royal Bank of Scotland is engaged in a little “market testing” as it tries to find a replacement for its chief executive Stephen Hester, ousted in rather murky circumstances to the City’s chagrin last month.

Here’s how it works: You put the name out there (in this case it’s Kiwi Ross McEwan who joined last year) and wait for the response. If it’s generally positive, your guy gets hired. Less so and it’s time for Plan B.

The tactic is not strictly legitimate. It used to happen all the time with mergers and acquisitions until the regulators called time on it. But with the hiring process, even though it is price-sensitive, it is still possible to get away with it with the tolerance of regulators, if not their endorsement.

When you have a leading shareholder (the Government) that is acutely sensitive to the public and media moods, as well as the City mood, it’s a sensible tactic.

This is why the name of Mr McEwan, below, was being touted around yesterday.

To be fair, he drew a fairly positive response. Ian Gordon, Investec’s banking analyst, who is generally willing to tell it like he sees it regardless of whether this makes him unpopular with the powers that be, described the reports linking Mr McEwan with the job as “extremely encouraging”.

He may well be right. Mr McEwan is an internal candidate and this was probably always the way the way it was going to go. Sir Philip Hampton, and indeed the Government, may well have liked the idea of a flashy external hire, particularly going into a privatisation process where they’d serve as a carrot to tempt big investors: “Look who we’ve got to run our bank!”

However, an internal candidate who knows the business, the people, and, crucially, where the bodies are buried, is in reality much the better bet. They should also come cheaper, and that’s the sort of thing that would play very well with the wider public. The importance of that shouldn’t be under-estimated. RBS is still something of a toxic brand. Spending big money on an external CEO could easily send any progress that has been made with changing the public’s perceptions about the bank into reverse, thus wiping out all of the benefits an external name might bring.