Royal Bank of Scotland has pulled the sale of its Williams & Glyn division after a preliminary deal was reached between the Treasury and the European Commission.
The Telegraph reports the bank, still majority-owned by the Government, has so far spent £1.8bn trying to offload the arm as part of efforts to comply with conditions set by the EU in return for state aid during the financial crisis.
The bank will instead create a fund, administered by an independent body, for challenger banks to increase their lending to small businesses.
RBS chief executive Ross McEwan says: “Today’s proposal would provide a path to increased competition in the SME marketplace.
“If agreed, it would deliver an outcome on our European Commission state aid divestment obligations more quickly and with more certainty than undertaking a difficult and complex sale and would provide much needed certainty for customers and staff.”