RBS, in common with other European lenders, faces a settlement with the U.S. Department of Justice (DoJ) over its role in selling mortgage-backed securities in the run-up to the 2008 financial crisis.

"It could be $5 billion, it could be $12 billion, and based on what happened to Deutsche Bank it could be more," James Leigh-Pemberton, Chairman of UK Financial Investments (UKFI), which manages the government's stake in RBS, told the Treasury Select Committee.

RBS, 73 percent state-owned, has not made a profit since it was rescued with a 46 billion pound government bailout during the financial crisis.

Leigh-Pemberton told the Committee, which was quizzing UKFI on its management of the government's sale of its RBS stake, that reports on the size of RBS's potential settlement with the DoJ were "market speculation" and the final range is unknown.

Deutsche Bank has said it will fight a $14 billion initial demand from the DoJ to settle claims it missold mortgage-backed securities, a shock bill that raised questions about the future of Germany's largest lender.

Investors will be unlikely to want to buy RBS shares until the bank has resolved its DoJ settlement because of the likely impact on the bank's capital position.

"The direct impact of the settlement number on the bank's book value and capital is an almost penny-for-penny impact on the share price," Leigh-Pemberton said.

Leigh-Pemberton said that UKFI has raised the settlement with the government and that Britain's Treasury is "acutely conscious of the impact of this litigation" on RBS and the value of its shares.

Aside from settling the U.S. case, RBS also needs to

resolve its disposal of branches under the Williams & Glyn name before investors will be interested in buying the bank's shares, Leigh-Pemberton said.

RBS has blamed the complexities of creating a standalone technology platform for delays in the sale of Williams & Glyn, which was a key European Union condition of its taxpayer-funded rescue at the peak of the global financial crisis.

RBS shares have fallen 31 percent in the year to date, against an 8 percent rise in the benchmark FTSE 100 index.

(Reporting By Lawrence White and Andrew MacAskill, editing by Huw Jones and Elaine Hardcastle)

By Lawrence White and Andrew MacAskill