LONDON (Reuters) - Royal Bank of Scotland reported the biggest loss in British history yesterday and said Britain's stake could rise as high as 95 percent after it stumped up billions to insure risky bank assets.

RBS said Britain would inject a further £13 billion ($18.5 billion) to help the bank pay for a new scheme that will transfer most of the risk from £325 billion worth of toxic RBS assets and risky loans to the taxpayer.

The so-called Asset Protection Scheme launched by Britain's Treasury yesterday was expected to insure well over £500 billion worth of assets by the time other banks have signed up.

Banks around the world have trillions of dollars of potential losses on their books after the collapse of the US property market triggered a credit crunch, leading to a full-blown global financial crisis and worldwide recession.

Hiving off troubled assets and purging banks of their worst liabilities will be a focal point of discussion at next month's meeting of G20 finance ministers and central bankers in Britain.

RBS said it made a £24.1 billion loss in 2008, topping the £21.8 billion loss by Vodafone in 2006 to be the biggest loss in British corporate history.

The results included £16.2 billion in write-downs on past acquisitions, including RBS's 2007 takeover of parts of ABN Amro, plus a £7.9 billion operating loss.

RBS shares, which had lost 95 percent of their value since early 2007, closed 26 percent higher at 29 pence, while the FTSE 100 share index added 1.7 percent. British government bond (gilt) prices fell sharply.

"The favourable pricing of the asset protection scheme, along with the additional capital injection from the government, will remove the immediate capital concerns about RBS," Panmure Gordon analyst Sandy Chen said in a note to clients.

"For now, the markets will probably focus on the favourable terms of this bailout."

Lloyds Banking Group shares rose 31 percent ahead of its results on Friday when it is expected to put over £200 billion of assets into the insurance package.

Lloyds said it was in talks with the Treasury about participating, but there was no certainty its involvement would be on the same terms as RBS.

Under the insurance scheme, RBS will pay a £6.5 billion pound signing-up fee and be responsible for the first £19.5 billion of any losses. The taxpayer will be liable for 90 percent of any losses beyond that.

RBS will also forego tax allowances as a condition of participation, lifting the potential cost to the bank to about 10 percent of the insured assets, or £30 billion.

RBS said it would cut £2.5 billion in costs as part of a restructuring programme that will see it exit or reduce its presence in 36 of the 54 countries it operates in.

Chief executive Stephen Hester said the insurance scheme would give RBS the stability to push through its restructuring.

"That doesn't mean we will recover successfully. There's a massive amount of hard work to do and obstacles to overcome, but we now have the job of execution," Hester told reporters.

He said he did not take issue with press speculation there could be as many as 20,000 job cuts, adding the crisis had taken its toll on staff morale.

"I believe that RBS's staff are disappointed and even ashamed at what has happened to the institution they worked for. They are feeling battered and bruised because they are being labelled with disapproval that is misplaced," he said.

Hester said while the government's voting rights would be capped at 75 percent, its stake in the bank could rise as high as 95 percent depending on future losses against insured assets.

Britain holds 70 percent of RBS after it provided the bank with an emergency capital injection of £20 billion in October.

Vince Cable, spokesman for the opposition Liberal Democrats party, said the latest support package was a disgrace, saying that unlike past bailouts the insurance scheme offered no prospect of a profit for taxpayers should the banks recover.

"It's essentially transferring all of the risk onto the taxpayer," he told BBC Television.