Royal Bank of Scotland Group PLC could be forced to sell Citizens Financial Group, the second largest retail bank in Massachusetts, according to media reports.

The Times of London reported yesterday that the Royal Bank of Scotland may have to sell its Churchill and Direct Line insurance operations, a large part of its investment bank, and Citizens, its US banking arm. "RBS is now trying to put a brave face on the situation – at one stage last week it was also being ordered to sell its Citizens Bank business in the US," the Times reported.

The British bank said today that European Union regulators will require it to sell more assets than originally expected, as part of an industry shakeup.

Citizens Financial Group, Inc., a $153 billion commercial bank holding company, employs about 24,000 people. It is headquartered in Providence, R.I., and has more than 1,480 branches, including a 12-state branch network under the Citizens Bank brand.

British Treasury chief Alistair Darling on Sunday said all three banks rescued by taxpayer money — Lloyds Banking Group, Northern Rock Plc, and RBS — would divest units.

On Monday, RBS said negotiations between the British Treasury and the European Commission, the executive arm of the EU, over the bank’s bailout terms were "in their final stages, and will include some divestments not initially contemplated."

RBS shares fell 7.1 percent to 38.92 pence on the London Stock Exchange. RBS shares have not closed below 40 pence since July 22.

The bank gave no details about what parts of its business it might be forced to sell.

"It remains RBS’s goal that any required divestments do not threaten its recovery plan, which is already under way," the company said.

RBS said it was also close to agreement with the Treasury about terms for insuring 325 billion pounds ($530 billion) of troubled assets, a step which will increase the government’s stake in the bank from the current 70 percent to more than 80 percent.