The Government has equity stakes originally worth close to £35bn in the two banks after a series of capital injections that were initiated 12 months ago.

Shares in RBS closed yesterday at 48.1p, under the 50.5p break-even price of the Government’s stake, leaving it at a £950m deficit.

Its holding in Lloyds, which comprises Lloyds TSB and Edinburgh-based HBOS, is £3.7bn down as its shares closed at 91.61p, well shy of the 122.6p break-even price.

As part of the deal, Lloyds also secured a lower price for HBOS, which it had agreed to take over weeks before, in a Government-brokered deal.

The Government holds 39.6 billion RBS shares, equivalent to 70.3% of the company.

But if the bank pursues plans to insure £325bn of loans and investments in the Government’s Asset Protection Scheme (APS), this could increase to as much as 84%. This would cover a £9bn to £11bn fee and a capital injection of up to £19bn.

The taxpayer owns 11.8 billion shares in Lloyds, 43.4% of the company. This could increase to well over 50% if it goes ahead with the APS.

Under terms agreed in March, the APS will insure £260bn of Lloyds’ assets for a £15.6bn fee.

But Lloyds is looking at alternatives to the scheme and is reported to have lined up investment banks UBS, Bank of America Merrill Lynch, Citigroup, Goldman Sachs, JP Morgan Cazenove and HSBC to underwrite a share issue of up to £10bn.

Yesterday news agency Reuters said freedom of information requests revealed seven firms have been paid £26.5m for work on the APS.

Accountant KPMG was the top earner with £6.5m. Rivals Ernst & Young and PricewaterhouseCoopers also benefited as did law firm Slaughter & May, investment banks Credit Suisse and Citigroup and fund manager BlackRock.

RBS’s share price has risen from a nadir of just over 10p while Lloyds has climbed from a low of 40p.

Ralph Brook-Fox, fund manager at Ignis Asset Management, said with bank share prices having risen substantially in recent months “we are well on the road to recovery”.

But he noted that in rebuilding balance sheets and dealing with legacy assets, RBS, Lloyds and other banks “are still not out of the woods”. “You cannot rule out things are going to deteriorate again but everybody is in a much better place than we were.”

A more cautious view is taken by Scottish-born hedge fund manager Hugh Hendry of Eclectica who said that the bail-out meant “deferring the pain over a greater number of years in the hope people do not recognise it just as much”. He told The Herald it could take “20 or 30 years” to bring about the necessary cultural changes in the sector.

He was particularly scathing that bondholders in RBS and Lloyds are continuing to receive coupon payments.