LONDON, Oct 19: British finance minister George Osborne said his ministry was actively looking at breaking up the state-backed Royal Bank of Scotland to create a “bad bank” to house its problem loans, the Daily Telegraph newspaper reported on Friday.

Osborne, who asked investment bank Rothschild in June to examine if RBS, 81-per cent owned by taxpayers, should be made to hive off its soured assets into a separate legal entity, has made sorting out the bank’s future his top priority for the next two to three weeks, the paper said.

“We are looking at the case for a bad bank and if not a bad bank what is the alternative strategy that really gets on top of the problems in that bank and goes on being what I want it to be which is a bank supporting the British economy,” Osborne told the Telegraph in an interview in China.

Rothschild’s review is due shortly and the paper said the government was “understood” to be considering three options for dealing with RBS’s problem assets.

These are creating a bad bank inside RBS run by an independent team; following the model used by Swiss bank UBS which created a bad bank supported by the Swiss central bank; or setting up an entirely separate taxpayer-backed bad bank.

The US asset manager BlackRock, hired to analyse RBS’s portfolio, had identified £50-60 billion of assets to be placed into any bad bank, the Telegraph added.

The paper said the go-ahead for the break-up would be given within the next few weeks however a Treasury spokeswoman said early on Saturday no decision had been made.

“As the Chancellor has said, the government is currently examining the case for creating a bad bank of the Royal Bank of Scotland’s risky assets,” she said. “That review is ongoing, and will be published in the Autumn.” Advocates of a break-up, including former Bank of England Governor Mervyn King and ex-finance minister Nigel Lawson, have said it would leave the bank better placed to lend and support the British economy. —Reuters