The Royal Bank of Scotland has reached a US$500 million settlement with New York state to offset charges that it sold toxic mortgage-backed securities that contributed to the 2008 financial tsunami.

The settlement will see the bank pay $100 million to the state and $400 million in compensation to homeowners and communities, including affordable housing projects.

RBS is the sixth lender to resolve similar charges pressed by New York, with the total value of settlements coming to about $3.7 billion. Commentators are expecting it to reach an even weightier settlement with the federal Department of Justice. Its share prices is still being suppressed by worries about these regulatory fines and upcoming litigation, but it has just gone into profit again for the first time in a decade.

RBS is part-owned by HM Government in the UK and is the parent of Coutts, the private bank. It admitted to misleading investors in 2006 and 2007, inclining them to believe that residential mortgage-backed securities were underwritten properly and in compliance with the state's laws and regulations. It faced charges of using deceptive practices while marketing and selling those securities.

New York’s probe focused on 44 securities offerings valued at more than $52 billion.