Britain is ready to start selling its shares in Lloyds Banking Group and will examine whether to break up Royal Bank of Scotland, Chancellor George Osborne said on Wednesday (June 19), after acknowledging the re-privatisation of RBS remains a long way off.

The government is keen to show Britain's part-nationalised banks are recovering from the 2008 financial crisis and a profitable sale of part of its 39 percent stake in Lloyds would allow it to claim at least partial success ahead of the next election in 2015.

Royal Bank of Scotland, still lumbered with toxic loans from a boom-era property binge in the UK and Ireland and buffeted by its role in a global interest rate-fixing scandal, remains a thorn in the side of the government and the wider economy, which is struggling to recover.

In his annual address to London's financial elite, Osborne said RBS probably should have been split into a good bank and its soured assets hived off into a so-called "bad bank" in 2008 when the lender was close to collapse.

"I can tell you today that we will urgently investigate the case for taking the bad assets - those mistakes of the past - out of RBS," Osborne told the audience in the Mansion House, the residence of the mayor of London's financial district.

"We will judge whether this will allow the bank to focus on its future supporting the British economy. We will see whether it's right for Britain to, in effect, see RBS broken up."

Osborne had previously dismissed splitting up RBS as too costly and disruptive. Similar "bad bank" solutions in Ireland and Spain triggered large losses that the state had to fill.

His decision to investigate a restructuring of RBS comes after a parliamentary commission he appointed to look at the UK banking industry recommended such an analysis earlier on Wednesday.

On Thursday (June 20) the central bank's regulatory arm will publish details of how much new capital Britain's banks need to raise, with media reports suggesting that Lloyds, RBS and Barclays will bear the brunt.

Earlier on Wednesday, legislators called for laws to imprison "reckless" bankers in a report.

Presented by Adam Justice