Royal Bank of Scotland has said it will not split itself into separate so-called good and bad banks.
RBS will create an internal "bad bank", ring-fencing £38bn of bad assets - such as loans it does not expect to have repaid.
The bank remains 81%-owned by the government following a massive bailout at the height of the financial crisis.
RBS also announced a pre-tax loss of £634m for the three months to 30 September.
In all, three separate topics relating to RBS were released on Friday: The company's own third quarter results report, a report into its small business lending practices by Sir Andrew Large, and the one commissioned by the government into whether or not to spilt the bank into two.
The main points include:
- No split into "good" or "bad" bank
- Fencing off £38bn of bad quality assets within the bank to be then sold off
- Poor performance in lending to small businesses
- Poor performance in serving individual customers - review launched
- Another £250m set aside for mis-selling payment protection insurance (PPI)
- Bottom-line loss of £634m for three months to end September
- No plans to reduce 81% government stake in business - yet
Chancellor George Osborne told the BBC's Today programme that RBS had been "painfully honest" about how weak a bank it was, and that today's decision to create an internal bad bank "would make it easier to sell off the bank and get out money back".
Heavy lossesRBS said it would make a heavy loss this year partly because it plans to sell the assets - the bad loans - held by the internal bad bank, more quickly than originally planned.
End QuoteThe idea is that when [the toxic debt] is gone, RBS will feel liberated"
It will sell up to 70% of these bad loans within two years, and will contain about £9bn of assets from Ulster Bank.
This will lead to an accounting write-off of up to £4.5bn.
Including one-off items and the new PPI charge of £250m, RBS made a loss of £634m.
The future of Ulster Bank, an important lender in both Northern Ireland and the Republic of Ireland, will be decided in the customer review.
The bank's chief executive, Ross McEwan, who took over from Stephen Hester in September, refused to say whether its would bring heavy job cuts.
ScandalsThe report released into small business lending said the bank was performing so badly on lending to small businesses it was not even meeting its own targets for the sector.
RBS's review into how it serves its individual customers is scheduled to report its conclusions early next year.
Like its fellow banks, RBS has been caught up in the mis-selling of payment protection insurance (PPI) - cover customers either did not need or did not qualify to use - and other banking scandals.
In a separate development just ahead of the results, RBS suspended two traders in connection with an investigation into the possible manipulation of foreign exchange rates.
Earlier this year, RBS was fined hundreds of millions of pounds for its involvement in rigging Libor interest rates.
'More resilient'The decision to keep the bad assets within the bank, but ring-fenced and managed separately, goes against the advice of the Parliamentary Commission on Banking Standards, which this summer suggested that toxic loans should be removed from RBS and kept in the public sector for the foreseeable future.
Continue reading the main storyToxic loans - or assets - include loans and mortgages that are not expected to be repaid, as well as more complex investments related to these bad loans.
The Bank of England said that it welcomed the plans for RBS's future structure, saying: "These actions should create a more resilient institution that is better able to support the real economy without any expectation of further government support."
RBS is still 81%-owned by the taxpayer, but unlike Lloyds, in which part of the taxpayer's stake was sold last month, there are no immediate plans to reduce that investment.
Earlier this year the bank's chairman, Sir Philip Hampton, said privatisation could begin as early as next year.
But the BBC's business editor says the first stages of privatisation are unlikely to take place until after the 2015 general election.
The government bought the shares at the height of the financial crisis at just over 500p a share.
They are currently well below that, at 367p.
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