Last checked at 
(Adds analyst comment, updates shares)
By Andrew MacAskill and Sinead Cruise
LONDON, Sept 30 (Reuters) - Royal Bank of Scotland is to separate its retail operations from its higher-riskbusinesses in a major overhaul to meet new ring-fencing rules inBritain, which also means the RBS brand will only be used inScotland.
Ring-fencing aims to avoid a repeat of the 2008 financialcrisis, when banks' bad bets threatened ordinary depositors'cash, leading to big taxpayer-funded bailouts. The rules applyto all banks in Britain that have both retail and commercial orinvestment banking activities.
State-backed RBS said on Friday NatWest would become itsmain retail brand in England, Wales and western Europe, whileits historic Royal Bank of Scotland name, which dates back to1727, will be for Scotland only.
The shake-up reflects RBS's latest effort to rebuild itsreputation after the bank's reckless lending and a takeoverspree on the eve of the financial crisis threatened to topplethe UK financial system.
"Our proposed future structure under the ring-fencinglegislation and our brand strategy are key elements of the bankwe are becoming," Chief Executive Ross McEwan said in astatement.
"The future ring-fenced structure of the bank is not onlydesigned to be in compliance with the new regulatoryrequirements and objectives but will better reflect who we areas a bank and what we stand for: a bank that is focused on itscustomers," he said.
RBS's shares were down 1.8 percent at 173.9 pence at 0845GMT amid a sell-off in banking shares across Europe.
"NatWest has a better net promoter score - a measure ofcustomer satisfaction - than RBS so it makes sense to use thebrand with the better profile in England and Wales," ShoreCapital analyst Gary Greenwood said. He said it would be harderto ditch the RBS name in Scotland where NatWest has never reallybeen used.
RBS, which is 73 percent owned by the British taxpayer, isthe latest bank to announce how it plans to reform its businessto comply with the ring-fencing changes, recommended by theVickers Commission in 2011.
HSBC has outlined similar plans including therelocation of its UK business to Birmingham last year, whileBarclays has carved its business into two coredivisions, including Barclays UK, to comply with the new rules.
RBS said its new ring-fenced bank would be called NatWestHoldings, comprising its core NatWest, Royal Bank of Scotland,Coutts & Co, Ulster Bank Limited and Ulster Bank Ireland DACbrands.
The legal entity of its private bank, Adam & Company, willbe renamed Royal Bank of Scotland Plc as part of the changes.Its Corporate and Institutional Banking business will be calledNatWest Markets and will form the non ring-fenced bank, togetherwith the bank's Channel Islands operations.
The group holding company will remain Royal Bank ofScotland.
Under the rules, banks' ring-fenced businesses, which willbe funded and capitalised separately, must include UK retailbanking and small business customers and most simple bankingtransactions.
Big global corporate customers and most investment bankingactivities must be held in a separate entity.
(Editing by Jane Merriman)
