RBS chairman Sir Howard Davies has warned that banks may have to pull operations out of the UK unless satisfactory transitional arrangements for the country’s exit from the EU are drawn up soon.

Sir Howard Davies said it would be damaging if there was no transitional plan and that banks would have to make decisions based on uncertainty.

Interviewed on ITV’s Peston On Sunday, Sir Howard said that US and Japanese banks were concerned by the prospect of a hard Brexit and were drawing up contingency plans.

He warned: “I think it is damaging if we don’t get a transitional deal because I think you will then see banks and financial institutions making decisions on the basis of uncertainty.

“They will not wait because they have to make a decision which will allow them to be, to continue to function in the event of a hard Brexit if that’s a possibility.

“So they will not sit back, they are currently making contingency plans and once you’ve got a contingency plan – hey, there is a risk you might implement it one day.”

Dublin, Frankfurt, Paris and Madrid are among the cities which have been making overtures to the UK banking sector, and a Bank of England deputy governor has warned that New York could end up being the main beneficiary from any loss of business from London.