RBS investment arm to be shrunk

Royal Bank of Scotland (RBS) is set to undergo a major scaling-down of its investment banking arm.

The reconstruction - announced by Chancellor of the Exchequer George Osborne - will see a big reduction in the size and scope of banks' investment arm, according to the BBC.

Following the reconstruction RBS will be left with an investment arm similar to that once owned by NatWest, which RBS bought a decade ago, sources told the BBC.

An FSA report published last week concluded RBS nearly collapsed in 2008 because of poor management, inadequate regulation and a flawed supervisory system. The bank is now 83% owned by the UK taxpayer.

The report also said regulators should have more powers to block hostile takeovers, in reference to RBS's ill-fated acquisition of ABN Amro.

Osborne also confirmed today banks' retail arms will be separated from their more risky investment divisions, as recommended in a report by the Independent Commission on Banking.