Britain's bailed-out Royal Bank of Scotland agreed Wednesday to pay a US regulator $5.5 billion (4.8 billion euros) over its role in the subprime mortgage crisis more than a decade ago.
The lender said in a statement that the œ4.2-billion penalty was a "heavy price" to settle US mis-selling claims, which occurred in the run-up to the notorious global financial crisis and subsequent worldwide recession.
"The Royal Bank of Scotland... has reached a settlement with the Federal Housing Finance Agency," the lender said in a statement on Wednesday, adding that FHFA "litigation against RBS will be withdrawn".
The net cost will be $4.75 billion due to special indemnity agreements. The deal resolves FHFA claims in relation to RBS's issuance and underwriting of about $32 billion of residential mortgage-backed securities in the United States before the financial crisis erupted.
The agreement settles an FHFA lawsuit alleging that RBS sold faulty mortgage bonds to Fannie Mae and Freddie Mac between 2005 and 2007.
RBS will pay approximately $4.525 billion to Freddie Mac and approximately $975 million to Fannie Mae, the FHFA added.
The announcement resolves one of two major US probes into mis-selling allegations; RBS has yet to reach a deal with the Department of Justice.
"This settlement is a stark reminder of what happened to this bank before the financial crisis, and the heavy price paid for its pursuit of global ambitions," RBS chief executive Ross McEwan said in the statement.
The deal was "an important step forward in resolving one of the most significant legacy matters facing RBS".
Edinburgh-based RBS remains 70-percent state-owned after receiving a vast government rescue at the height of the 2008 crisis in the world's biggest banking bailout.
The FHFA fine is largely covered by money already set aside by the bank, which has long been plagued by legacy costs arising from its past conduct.
McEwan cautioned the bank may need to set aside more money to settle outstanding claims.