The bank is now the 17th lender to strike a deal with the regulator over the sale of subprime mortgages.

Royal Bank of Scotland, the parent of UK private bank Coutts, has agreed to pay a US regulator $5.5 billion over its sale of toxic mortgage-backed bonds during the run-up to the 2008 financial tsunami. 

The penalty, imposed by the US Federal Housing Finance Agency, was a “heavy price” to pay, the lender said in a statement on Wednesday. The body accused RBS of mis-selling $32 billion of mortgage-backed securities before the financial crisis. 

The settlement ousts one of several obstacles the UK government-controlled bank faces before it can resume dividend payments and return to private hands. 

RBS had already set aside funds to cover most of the costs. 

The Edinburgh-headquartered bank has become the 17th lender to strike a deal with the FHFA over the sale of subprime mortgages. RBS' share price was up 1.03 per cent at 12:02 pm on July 13. 

"It is never a great experience for a CEO to be writing such a large cheque...but unfortunately that is the price we are paying to get this organization into a much better shape," RBS chief executive Ross McEwan said.