It that happens, Ulster Bank, a subsidiary of RBS, with operations across the island of Ireland will be the second bank to become state-owned following the recent nationalisation of Anglo Irish Bank.
The British government would become the new owners of Ulster.
British chancellor Alistair Darling is desperately trying to prevent that from happening. He is endeavouring to push though Operation Broom, which would allow British banks to sweep their toxic assets into an insured government fund.
Writing in yesterday’s Financial Times, Mr Darling said RBS, already 70% state-owned, would be easier to return to private sector ownership if it was kept as a listed company.
Meanwhile, the two big British banks are battling it out with the British treasury over the terms of the £500bn (e560bn) rescue package.
The chancellor believes the £500bn fund to cover the toxic assets is the last chance the banks have of falling into state ownership. However, sceptics believe his efforts are doomed.
“This is prolonging the inevitable and the inevitable is nationalisation,” said Tom Kirchmaier, a corporate governance lecturer at the London School of Economics said.
“It will instil some trust, but I doubt it will solve all the problems with the banks. We still haven’t seen the worst of the real economy,” he said.
The general secretary of the Irish Congress of Trade Unions David Begg said last weekend he expects the two major Irish banks will be nationalised within the next three months.
If “the inevitable” happens it will mean three of the major banks in Ireland will come under state ownership.
In the case of the two Irish-owned banks analysts have warned that the e7bn bailout plan is insufficient, with some claiming they will each require at least e3bn more in government aid to dig them out.
RBS is the first British lender aiming to take part in the asset protection plan and hopes to disclose the terms of its participation when it reports results today. Lloyds Banking Group and Barclays may also join.
Britain nationalised Northern Rock after the country’s first run on a bank in more than a century. It later seized Bradford & Bingley, but the government has said it doesn’tintend to nationalise more banks.
“We’ve made it very clear that in our view the commercial sector and private ownership is the right place for banks,” Stephen Timms, treasury, chief secretary told the BBC.