Bank of England head Mervyn King has urged the government to break up Royal Bank of Scotland (RBS) in an attempt to help the state-backed lender return to financial stability and be taken over by the private sector.

King said in a statement weeks before Bank of England was appointed as the banking regulator in Great Britain that bad assets on RBS books needs to be split off in order for it to create capital to lend more. He added that the government should have more direct control of RBS, which it bailed out at the height of financial crisis in 2008.

Following the comments from King, shares in RBS declined but later showed improvements, trading at around 314 pence, an increase of 0.5% on the day.