Ministers and RBS executives were hammering out details of the plan, which will be formally announced on Thursday. Lloyds Banking Group, which is expected to insure up to £250bn worth, is expected to unveil a similar deal when it reports results on Friday.
The plan amounts to a giant state recapitalisation of two of Britain's largest banks that attempts to ensure that they retain their stock market listings while compensating taxpayers for the enormous risks they are taking on.
The government is expected to insure RBS against the majority of future losses on a loan portfolio worth more than £300bn – more than the £250bn the bank had previously been expected to inject in the scheme. In return, RBS is expected to issue billions of pounds in equity to the government and make commitments to increase lending.