The Coalition Government should refashion RBS into a network of regional banks to help boost the economic recovery by helping small businesses, it has been claimed.

Think tank Civitas said ministers should take advantage of the fact they own more than 80% of the bank.

Breaking it into regional banks could transform the fortunes of smaller and medium sized business across the UK, it claims.

The Treasury is ­considering whether to split RBS up into a 'good' and a 'bad' bank, an idea that has the backing of ex-Bank of England governor Sir Mervyn King.

Ministers are also mulling a sell-off of the state-owned bank, including the potential for giving shares to taxpayers.

However, Civitas says the Coalition should reform the institutions so they mirror those of the German Sparkassen, a group of banks which lend only within their areas and have a duty to promote growth.

Experts say ­Germany's banking system has played a significant role in the country's economic recovery.

During the German ­recession the Sparkassen increased loans to business while large commercial banks cut them.

Labour has already signalled its commitment to regional banking. However, the idea has not had the backing of the Coalition.

Research fellow Kaveh Pourvand said the model could work with RBS.

He said: "It already has a branch network, a customer base and well established banking infrastructure in terms of IT, administration and so forth."