It is suspected Vince Cable, the Liberal Democrat Business Secretary, is pushing the line that the taxpayer, who owns 83% of RBS, should own 100% in a bid to boost lending.
Last week, Mr Cable's LibDem colleague Lord Oakeshott suggested that if RBS was incapable of doing its basic job of lending money, then "we must nationalise it".
However, Whitehall sources were heavily playing down the prospect.
Moving to a full nationalisation would cost around £5 billion. Industry insiders have raised questions about how the Government would force the Scottish bank to lend more to businesses without saddling taxpayers with even greater risk.
Last night, a Treasury spokesman dismissed out of hand the idea of full nationalisation of RBS, telling The Herald: "This is wild speculation. We are committed to repairing and returning RBS to full health so that it is able to support the UK economy."
He added: "The Government's policy has always been to return RBS to the private sector but only when it delivers value for money for the taxpayer."