RBS' share price fell after the political battling over the chief executive's bonus (REUTERS/Luke MacGregor)

RBS shares have crashed in the wake of the Stephen Hester bonus row and shrunk the bank's value by £300m.

The shares crash came after Hester, chief executive of the state-owned bank, succumbed to a weekend of pressure and agreed to waive his near-£1m bonus.

Hester's bonus was in RBS shares, deferred for three years, and were worth about £950,000 at the current market rate.

The share price opened at 27.45p but fell to a low of 26.93p.

This leaves the government, which owns 82 percent of RBS, even further away from retrieving the £45bn it has ploughed into the bank when bailing it out during the 2008 financial crisis.

Chancellor George Osborne had warned against political involvement in deciding remuneration at RBS.

Osborne told an audience at the World Economic forum in Davos that the RBS board was independent from the state and that behind-the-scenes government intervention "would flout every law about shadow directorships".