22:34
Tieng Anh Vui
Royal Bank of Scotland is not going to split into separate so-called good and bad banks, it is expected to announce alongside its financial results later.
Instead it will create an internal "bad bank" ring-fencing about £40bn of bad assets - such as loans it does not expect to have repaid.
It follows a Treasury-backed report into whether RBS should be broken up.
The bank remains 81% owned by the government following a massive bailout at the height of the financial crisis.
The BBC's business editor Robert Peston says the expected announcements by RBS and the Treasury, which will give its approval of the plan, are intended to be important steps towards mending the bank and preparing the ground for RBS's return to the private sector.
New chief executive
Earlier this year, Chancellor George Osborne commissioned two City firms, Black Rock and Rothschild, to evaluate the case for splitting RBS in two.
The decision to keep the bad assets within the bank, but ring-fenced and managed separately, does not go that far.
It also goes against the advice of the Parliamentary Commission on Banking Standards, which suggested that toxic loans should be removed from RBS and kept in the public sector for the foreseeable future.
Toxic assets include loans and mortgages that are not expected to be repaid, as well as more complex investments related to these bad loans.
RBS already operates a "non-core" division, which holds £54bn of the bank's problem assets, and the new bad bank is expected to take its place.
The announcement is expected alongside RBS's third quarter results - the first overseen by RBS's new chief executive Ross McEwan, who took over from Stephen Hester in September.
The bank is expected to reveal that it continues to make a profit, having made £1.4bn in the first half of this year after racking up losses of £5.2bn in 2012.
It is not clear whether the results or the plans for a bad bank will speed up RBS's planned return to the private sector.
Traders suspended
The government began selling off its stake in Lloyds Banking Group, which was also bailed out during the banking crisis, in September, reducing its shareholding from about 39% to 33%.
But it has given no timetable for the sale of RBS, which has recovered more slowly from the crisis.
The bank's share price currently remains well below the 502 pence a share the government paid for its stake, meaning the share price would have to rise significantly for it to break even on its investment.
Earlier this year the bank's chairman, Sir Philip Hampton, said privatisation could begin as early as next year.
But the BBC's business editor says the first stages of privatisation are unlikely to take place until after the 2015 general election.
In a separate development RBS has suspended two traders in connection to an investigation into the possible manipulation of foreign exchange rates.
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