The final size of the payout remains subject to some speculation but James Leigh-Pemberton, chairman of UK Financial Investments said RBS could face a penalty similar to the $14 billion facing Deutsche Bank.
He told the Treasury Select Committee the RBS fine “might be $5bn, it might be $12bn (£9.6bn), adding that “based on what happened to Deutsche Bank it could be more.”
It is understood that RBS has not set aside any money to settle with the US Department of Justice over the mis-selling of residential mortgage-backed securities (RMBS) before the 2008 banking crisis.
This is the key reason why Chancellor Philip Hammond has given up on reducing further the taxpayers’ 73% stake in the bank after his predecessor offloaded a small stake last year.
In September the bank said: “RMBS litigation and investigations may require additional provisions in future periods that in aggregate could be materially in excess of the [current] provisions.”
RBS shares currently trade just above 208p against the 502p average price at which the Treasury bought shares to rescue the bank in 2008 and 2009.
Former Chancellor George Osborne sold a 5% holding in August 2015 for 330p in what was an attempt at drip-feeding the market in the hope of selling the whole of the stake.