Ulster Bank will now embark on an internal review aimed at driving down costs, improving systems and creating efficiencies.
Close to one-third of Ulster Bank's £31.9bn of loans will be moved into an RBS £38bn bad bank to be "wound down" by 2016 under a new structure announced yesterday.
The move stops well short of a much-feared worst-case scenario that could have seen all of the bank's Irish unit placed into the vehicle to be run down.
The decision to retain Ulster Bank largely intact was ultimately one for the UK government, which owns 81pc of RBS.
The decision will end speculation that Ulster Bank itself could all have been marked for inclusion in the "bad bank" which would have meant a gradual closure of the third-biggest Irish lender.
Management at Ulster Bank welcomed the announcement, as did political and business leaders on both sides of the Border yesterday.
Tanaiste Eamon Gilmore said he even expected to see new banks entering the market here, as the economy is expected to improve.
"I think as the economy recovers – and it is recovering – you are going to see increased interest by banks in the (Irish) economy," he said.
Ulster Bank said yesterday's announcement meant "business as usual for our customers".
However, the lender said it would be contacting customers whose loans were heading into the bad bank directly to explain the implications for their business.
With the major question mark over Ulster Bank settled, the review due to conclude in February is expected to focus on operational and organisational issues.
RBS chief executive Ross McEwan indicated he wanted to improve on a "cost to income" ratio that means it costs the bank 61 cent for every euro it takes in.
Ulster Bank needs "substantial restructuring" according to a report by the UK Treasury, which warned that the Irish bank "needs to match its costs to ... a smaller balance sheet."
Any such hard look at costs means the question of staffing levels and the size of the branch network will be on the table between now and February.
But the review will also see some investment, including an overhaul of the notorious IT systems where failures last year caused massive disruption when the bank's customers were left without access to their digital bank accounts for weeks.
Yesterday's announcements came as the bank published financial results for the nine months to the end of September. Losses at Ulster Bank were £461m for the first nine months of 2013, down from £797m in 2012.
The improvement was mainly thanks to reduced impairment charges.