George Osborne will not be splitting apart the Royal Bank of Scotland, as it will instead create an internal "bad bank" of £38 billion of problem assets.
The 81% state-backed bank revealed that it had avoided a carve-up and nationalisation of its problem loans, with plans for the internal bad bank to run down up to 70% of its toxic assets within two years as well as problem commercial property loans.
RBS said that its operating profits had more than halved to £438 million in the third quarter, when compared to last year.
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The bank's results come as it has reportedly suspended two traders in connection with the possible fixing of the £1 trillion-a-day foreign exchange market.
New RBS chief executive Ross McEwan said the plan will "create a bank that can reward the faith of UK taxpayers and all our investors".
He added: "You’ll have to talk to the Chancellor about [when we will be sold], our objective is to make a good bank out of this that he can sell easily. I think we all would [like it to be privatised faster]: that’s our objective, but it’s not in our hands. I'll be doing my best just to create a really good bank so he has a great asset to sell."
Chancellor George Osborne said RBS's new focus will see it being a "boost to the British economy instead of a burden".
RBS will make a substantial loss this year as the faster run-down of assets in the internal bad bank will cause an accounting write-down of up to £4.5 billion.
And when including one-off items and an additional charge of £250 million to cover redress for the mis-selling of payment protection insurance (PPI), RBS made a bottom-line loss of £634 million in today's third quarter results.
Labour shadow chancellor Ed Balls said: "After the firesales of Royal Mail and Northern Rock, we will scrutinise George Osborne's plans for the future of RBS very carefully. As we argued when, earlier this year, the Chancellor flirted with the idea of a quick sale of RBS to a political timetable, the taxpayer interest must come first.
RBS' announcement also coincided with a scathing report from former Bank of England deputy governor Sir Andrew Large on the bank's lending to small and medium-sized firms, which uncovered a swathe of problems in how it treats them.
Large's report conclude that RBS had failed to meet its own targets for lending to small and medium-sized businesses and risked seeing its market share plummet unless it simplified its lending process and sped up its credit application decision making.
“There is no silver bullet, but they really do need to take a fresh look at it all. There are an awful lot of things they are doing, but when you look at what they are achieving it hasn’t quite worked out,” said Sir Andrew.
The report also called for RBS to launch an independent investigation into claims of abusive practises in its global restructuring group (GRG), which helps businesses in financial distress.
Lawrence Tomlinson, the serial entrepreneur advising the Department for Business, previously told the Huffington Post UK that banks like RBS were "killing off" businesses through their restructuring programmes.