Check out the share prices of Royal Bank of Scotland Group Charter One Financial Corp UK banking sector

The purchase is to take place through Citizens Financial Group, RBS's main vehicle in the US.

It will give the bank access to six Mid-Western states including the cities of Chicago, Detroit and Cleveland.

RBS has been a keen buyer of financial services firms in the US, but Charter One is its biggest buy to date.

RBS has taken an aggressive approach to mergers and acquisitions both in the UK and abroad.

The Scottish bank became the second largest in the UK in 2000 when it bought NatWest, in a hostile takeover of one of the four UK clearing banks which was twice its size.

According to RBS, merging Charter One into Citizens will make the resulting bank one of the 10 biggest in the US, with assets of almost $130bn and 24,000 employees in 13 states.

Charter One has 616 branches in the Northeast and Midwest, and also an extensive portfolio of financial businesses including auto finance and commercial leasing.

Until now Citizens' presence has been restricted to seven states in the north-eastern US: five states in New England as well as New Jersey and Pennsylvania.

RBS chief executive Fred Goodwin said "this is a highly logical and natural acquisition for Citizens to make...it consolidates Citizens position as one of the leading banks in the US".

RBS hopes to get one quarter of its future profits from its US operations.

US growth

The expansion is only the latest in a constant stream of US acquisitions - 26 since Citizens was bought by RBS in 1988.

The most recent was the credit card arm of People's Bank in Connecticut for $360m in February. The largest until now was the retail branch network of Mellon Financial Corp for $2.2bn in 2001.

Charter One's shareholders are to receive $44.50 a share when the deal closes towards the end of this year.

The deal is to be financed with new shares worth about �2.5bn.

The US retail banking system has seen a wave of consolidation since the US Congress deregulated the banking sector in the late l990s.

In the most recent move, Bank of America paid $44bn to buy FleetBoston Financial.