MOVES to break up Royal Bank of Scotland appear to be gaining momentum after Financial Policy Committee appointee, the former Goldman Sachs banker Richard Sharp, said history showed the success of taking toxic assets off bank balance sheets.

The Parliamentary Commission on Banking Standards, established by the UK Government in the wake of renewed banking scandals last summer, is understood to be preparing to put forward the option of splitting the part-nationalised lender's troubled loans from its profitable business.

In a hearing to approve his appointment to the Bank of England's Financial Policy Committee, Mr Sharp told the Treasury Select Committee of backbench MPs: "History has shown, for example within the Scandinavian context, that the removal of the bad bank assets does allow a bank to operate more effectively."

Chancellor of the Exchequer George Osborne has warned it would cost a further £8-10 billion to buy the 19% of RBS not owned by taxpayers and take up to three years to implement a division.

But former Tory chancellor Lord Nigel Lawson, a member of the cross-party commission, has made it clear he supports a split.

In remarks widely interpreted to concern RBS, another commission member, Archbishop of Canterbury Justin Welby, has called for large banks to be split into regional lenders.

Outgoing Bank of England Governor Sir Mervyn King also backs a break-up of RBS.

As of the end of the March, RBS still had £54.6bn of non-core assets, which would likely sit in a bad bank. This is around one-third of what it held three years ago.

Removing these could boost profits, allowing RBS to build up capital faster and therefore, potentially, lend more.

It is thought that a draft of the commission's proposals, expected to be published later this month, stops short of making a specific recommendation on RBS's future but sets out options.

Commission members will discuss the draft next week.

Shares in RBS, which received a £45bn taxpayer bailout, are currently trading well below the Government's break-even price.

Mr Sharp, who worked at Goldman Sachs for 22 years, said he believed RBS and 39% state-owned Lloyds "are not running rings" round regulators after avoiding being asked to issue more shares to beef up capital. But he added: "In general I would be in favour of banks obtaining more capital, as much as they can."

Mr Sharp faced repeated questioning from Treasury committee members about his independence given large donations he has made to the Conservative Party.

"I believe I was considered on my merits," he insisted.

But the greatest pressure was heaped on former London Stock Exchange chief executive Dame Clara Furse, a director of Benelux bank Fortis when it joined an RBS-led consortium in acquiring Dutch bank ABN Amro in 2007. Fortis was later bailed out by taxpayers.

Dame Clara, the first woman appointed to the FPC, said it had been a "searing experience". "Shareholders lost enormous amounts of value, which I deeply regret," she said.

She insisted the failure was down to problems funding the deal. "Fortis did not buy a bad bank," she said. "There is a huge difference between high-quality, low-risk, high-margin assets in a retail bank in Holland and what RBS was acquiring."

But Dame Clara's refusal to back the FPC taking on immediate new powers to constrain the borrowing on banks' balance sheets irritated some MPs.

Another new FPC appointee, former Barclays chief executive Martin Taylor, said the element of the Libor manipulation scandal that engulfed his former employer last year concerning low rate submissions during the financial crisis was of limited severity.

"There was a very serious offence and a trivial offence."

Understating the bank's borrowing costs at the height of the financial crisis "seems to be a help to financial stability and not a hindrance", he said.