A plan to turn 316 branches owned by Royal Bank of Scotland into a state-backed business lender is reportedly being considered in Whitehall.
The move is seen as an option if no buyer can be found for the estate, which RBS is being forced to sell as punishment for receiving state aid during the financial crisis four years ago.
Under the name Williams & Glyn’s, which was acquired by RBS 27 years ago, the business would become a standalone bank focused on lending to small firms, the Sunday Times reported.
The branch network has 1.8 million retail customers and a portfolio of 240,000 small business accounts and 1,200 mid-sized corporate banking relationships - equivalent to a 5% share of business banking in Britain.
A memorandum outlining the terms of the latest sale attempt is expected to be circulated this week.
Virgin Money and Nationwide are reportedly keen on the branches after Santander pulled out of a deal with RBS last month following two years of talks.
If a sale cannot be agreed and a stock market flotation attracts insufficient interest, the business could be demerged to RBS’s existing shareholders.
As RBS is still 83% owned by the Government, giving the taxpayer the equivalent stake in the new bank, it would be possible to offer shares in RBS in exchange for the remaining 17% of the new bank, creating the state-owned business lender.
However, today’s report said it was unclear whether the plan would breach European state-aid rules.