IN yet another payout due to historical bad behaviour, Edinburgh-based RBS has agreed a settlement of $20 million with the State of Illinois over mis-selling of mortgage-backed securities.

Illinois attorney general Lisa Madigan announced the $20m settlement with the state-owned bank as a result of her investigation into the bank’s misconduct in its marketing and sale of risky residential mortgage-backed securities (RMBS) leading up to the 2008 economic collapse that saw RBS bailed out to by the taxpayer to the tune of more than £40 billion.

In her announcement, the state attorney general stated that the settlement resolves an investigation by Madigan’s office over the bank’s failure to disclose the true risk of RMBS investments.

Madigan said: “With this settlement, I have recovered over $475m for Illinois pension systems and residents as a result of fraudulent conduct in the mortgage-backed securities market.

“Nearly a decade after the economic crisis, I continue to recover critical funds for the state due to Wall Street’s misconduct.”

Under the settlement, RBS’s $20m will be distributed to the state of Illinois’ teachers retirement system, the state universities retirement system and the state board of investment, which oversees the state employees’ retirement system.

All of these bodies stated that they lost income due to the real state of the RMBS investments.

The settlement is the eighth settlement addressing the sale of mortgage-backed securities during the lead up to the economic collapse. Illinois State has led the crusade to recover money from financial institutions, all of whom have reached agreements to pay out rather than go to court.

Madigan previously settled with JPMorgan Chase & Company for $100m to Illinois’ pension systems; with Citigroup for $44m to the state’s pension systems and an additional $40m in consumer relief; with Bank of America for a record $300m, including $200m to Illinois’ pension systems and an additional $100m in consumer relief. She also settled with Morgan Stanley for $22.5m to the state’s pension systems; and with Goldman Sachs for $25m for the state’s pension systems and $16m in consumer relief.

It was not just banks that felt Madigan’s wrath. She also secured a $52.5m settlement with Standard & Poor’s and a $19.5m settlement with Moody’s, the two American giants of the financial advice sector. Madigan said yesterday those two settlements were to resolve allegations that the companies compromised their independence by doling out high ratings to risky mortgage-backed securities as corporate strategies to increase its revenue.

Illinois State said: “Attorney general Madigan has led the country in taking legal action against banks, lenders and other financial institutions for unlawful financial misconduct that contributed to the country’s economic collapse. Madigan’s enforcement actions have recovered over $3.3bn for consumers, communities, county recorders and pension funds.”

RBS is still state-owned, but only a month ago the Conservative Government showed its disregard for taxpayers’s cash, while pandering to the City when it was announced that the latest privatisation of RBS shares had been carried out at a loss of £2.6bn.

RBS did not comment yesterday.