London: Britain's government is to create three new high street banks from bailed out lenders Royal Bank of Scotland, Lloyds Banking Group and Northern Rock, according to media reports.
The huge shake-up comes as the government seeks to recoup taxpayers' cash used to prop up the banks during the world financial crisis and increase competition.
Lloyds is 43 percent owned by the state and RBS 70 percent, while Northern Rock was nationalised outright.
The government could confirm the move, to come in by 2015, on Tuesday, reports said.
"What we are talking about here is basically three new banks," an unnamed Treasury source told the Sunday Telegraph.
"We want a better deal for the taxpayer after all the investment that they have made."
The new banks would be retail-focused, concentrating on deposits and mortagages.
RBS and Lloyds are also reportedly set to sell off some parts of their businesses, including around 300 branches for RBS, while the Observer reported that Lloyds is set to launch a 13 billion pound (14.5 billion euro, USD 21.5 billion) cash call.
Meanwhile, the government could up its stake in RBS from 70 percent to up to 84 percent, the Sunday Times reported.
EU regulators last week approved the state aid contained in plans to break up and sell Northern Rock.
All three banks received huge government bailouts at the height of the global economic storm but regulatory authorities are concerned about such state-backed banks having an unfair advantage over those that were not helped.
The Sunday Telegraph reported that no current owner of a British retail bank would be allowed to take on the new institutions so buyers could come from the US, Australia or the Middle East.
Bureau Report