The plan, set to be announced by RBS chief executive Stephen Hester when it reports its latest financial results on February 26th, will see the group divided into core and non-core business units.
Non-core units, which are believed to include the bank's investment banking division, along with its operations in Asia and central and eastern Europe, could be closed down or sold off as the company looks to insulate its viable business units from further turbulence.
The bank also plans to place around Â£200 billion ($291 billion) worth of toxic assets into a government-backed insurance initiative designed to cap potential losses and will undertake a Â£1 billion cost-cutting program.
Restructuring the bank could take up to five years, the source said.
RBS has not commented on the speculation.
Earlier this year, Citigroup announced that it would be splitting in two in a bid to protect its core divisions and restore investor confidence.