Royal Bank of Scotland would have to pay higher-than-expected fines in connection with a US probe into it over the alleged mis-selling of mortgage-backed securities.
The Times, citing people familiar with the situation, reported that RBS could face fines of more than £5bn ($7.7bn, €6.4bn) in connection with the sale of about $32bn of toxic mortgage-backed securities in the US.
The bank has so far set aside only £1.9bn as provision for a settlement with the US Federal Housing Finance Agency (FHFA).
Following the news, shares in the bank, majority owned by the taxpayers, closed down 1.34% on 2 January at £3.89.
The bank has faced a number of cases in connection with its sale of mortgage backed securities in the run up to the 2008 financial crisis.
In June, RBS agreed to pay $99.5m to settle claims it mis-sold more than $2bn of mortgage-backed bonds between 2005 and 2007. In another case, the bank sold $30.4bn of allegedly faulty mortgage securities to Freddie Mac and Fannie Mae.
The bank declined to comment on the Times report. RBS CEO Ross McEwan in October suspended dividend payment until the bank had strengthened its capital position and had more clarity over pending lawsuits.
US regulators have already fined a number of banks over their selling of faulty mortgage bonds to investors, who later suffered huge losses.
In 2013, UBS agreed an $885m settlement with US regulators over a lawsuit that alleged the bank misled government-owned mortgage firms Fannie Mae and Freddie Mac into buying $4.5bn of poor-quality mortgage bonds.
HSBC Holdings settled a similar case with the FHFA, agreeing to pay $550m in September.