In a letter to Osborne, Carney wrote that public ownership of RBS has served its purpose, preventing the spread of financial chaos at a time when the UK's financial system was "extremely fragile" and the bank was on the verge of collapse.
"Continued public ownership without a foreseeable end point runs risks including limiting RBS' future strategic options, and continuing the perception that taxpayers bear responsibility for RBS losses. In these regards, there could be considerable net costs to taxpayers of further delaying the start of a sale," Carney wrote.
"In contrast, a phased return of RBS to private ownership would promote financial stability, a more competitive banking sector, and the interests of the wider economy. Given the progress RBS has made in recent years, there are considerable potential benefits to commencing this process in the near-term," Carney added.
Rothschild's report concluded that it is in taxpayers' interest for the government to "set in train an initial small disposal" of shares in the bank.
The argument put forward by Rothschild was based on five key points, with the first being that beginning the sale would increase the free float of the bank's shares on the market, thereby helping to market the remaining shares for larger sales on better terms in the future.
Secondly, beginning the process to return RBS to private hands and sending a "strong signal" that it is recovering could bring benefits by removing any impression among investors that the bank may not be run for purely commercial purposes.
Royal Bank of Scotland has announced it will not split itself into separate "good" and "bad" banks.
After reporting the biggest loss in UK corporate history at 2008 at the peak of the financial crisis, RBS was bailed out by the government and remains 81%-owned by the taxpayer.
There was much speculation that the bank would be split in an effort to restore profitability - but now that will not happen.
What is a bad bank?
When a bank runs into trouble, its balance sheet is usually weighed down with worthless loans. These assets are so poor that their losses outweigh any potentially profitable parts and prevent the bank from lending out money.
Without being able to lend more money, which is the point of its existence, a bank can't generate an income.
One way of dealing with this is to take out all the toxic assets from the so-called good bank, and put them with a bad bank, to be run by the government. That way the bank can get on with the job of being a bank and the government can deal with managing or selling off the bad assets in a measured way.
The best example of this is the 1990s Swedish banking crisis. Following a property boom in the 1980s, the inevitable bust followed, leaving most of the biggest banks in the country insolvent.
Sweden created two bad banks to take on the bad debts of its biggest banks. Securum, one of the bad banks, was created in 1992 and wound down in 1997, when the economy recovered and the banks had healed.
More recently, Ireland's overloaded banking sector collapsed following the banking crisis and the state formed the National Asset Management Agency - which is still going - to manage all the bad assets of its insolvent lenders.
In the UK, there is a recent precedent.
Northern Rock was nationalised in 2008, and the bank was split into two in 2010. Virgin Money bought the good part and the bad bits are still held by the government-owned Northern Rock (Asset Management) Plc.
RBS to repay last slice of crisis loans but taxpayers still facing huge share hit as bank reports £1.4bn loss
By JAMES SALMON FOR THE DAILY MAIL and RACHEL RICKARD STRAUS
PUBLISHED: 03:36 EST, 4 May 2012
Read more: http://www.thisismoney.co.uk/money/news/article-2139385/RBS-repay-slice-crisis-loans--reports-pre-tax-loss-1-4bn.html#ixzz3cmuKLcWU
Royal Bank of Scotland is set to pay the final installment of its £163billion emergency loans, underwritten by British and American taxpayers, next week.
The emergency loans included £36.6 billion in emergency liquidity assistance from the Bank of England, and some £52 billion from the US Federal Reserve, as well as £75 billion from the Credit Guarantee Scheme.
By paying off the final tranche of this debt, taxpayers are no longer on the hook for these loans if RBS goes bust or defaults. But taxpayers still have an 82 per cent stake in the bank, which has halved in value to just over £22billion as shares have plunged.
Banking bailout: The rise and fall of RBS
In the autumn of 2007 Royal Bank of Scotland wowed the City by announcing an operating profit of £10.3 billion, the biggest ever for a Scottish company and the equivalent of £1 million per hour.