Thousands of City jobs will be put on the line when Royal Bank of Scotland outlines a restructuring of its investment banking arm, amid warnings from the chancellor that the UK's banks need to restrict bonuses.

Between 3,000 and 4,000 jobs are expected to be axed from the 17,000-strong RBS investment banking operation, while there are fears that up to 500 jobs could go at Ulster Bank, which employs 6,000 people on both sides of the Irish border.

At an appearance before MPson Thursday, George Osborne said he would take a "keen interest" in RBS bonuses but made it clear that he could not prevent some of this year's payouts.

"I would certainly expect to have many conversations with the RBS management about the bonuses which they may or may not wish to pay," Osborne told the Treasury select committee of MPs.

"Of course, my hands are tied on the bonus arrangements agreed by the previous government but when it comes to the new bonus arrangements you can be sure that this chancellor will be taking a keen interest," he said.

RBS share awards made three years ago are due to vest in the coming months, including an estimated £1m to the bank's chairman, Sir Philip Hampton, and £4.5m to John Hourican, the head of the investment bank. The exact amounts will be related to performance and the share price.

The governor of the Bank of England, Sir Mervyn King, said in December that banks should bolster their capital before paying out bonuses. "That advice should be heeded," the chancellor said.

Osborne also said that the £8bn cost of erecting a "ring-fence" between investment banks and high street banks – as recommended by the Independent Commission on Banking – should not be passed on to customers.

"I don't accept the only way for the banks to absorb these costs is to increase the cost of lending. They could actually reduce – shock, horror – their remuneration packages. That might be another way to absorb those costs," he said.

Osborne's acknowledgement that the country was losing billions of pounds on its current stake in the bailed-out banks came just hours after the resignation of the chairman of UK Financial Investments, the body that controls the taxpayers' stake in the bailed-out banks.

As UKFI chairman, Sir David Cooksey – who will be replaced by the current chief executive, Robin Budenberg – announced his departure after two and a half years, he said that the process of selling off 83% of RBS and 41% of Lloyds Banking Group had been delayed.

"Disposal of the investments in Lloyds and RBS will inevitably take longer than originally expected, given the challenging economic and banking industry environments both in the UK and globally," Cooksey said.

Budenberg, who is to be replaced as chief executive by the existing UKFI manager Jim 0'Neil, will act as executive chairman until his successor takes on his expanded role in April 2012.

Osborne reckoned that shutting down the "capital-hungry" investment bank would be a good deal for taxpayers. RBS shares closed at 21.79p on Thursday. The taxpayer breaks even at just above 50p.