Royal Bank of Scotland (RBS) will be punished for its role in the global interest-rate rigging scandal with fines amounting to $612 million, the British bank said on Wednesday.
This is one of the largest penalties leveled so far in an international investigation involving over a dozen banks, and will heap embarrassment on a lender that had to be bailed out by British taxpayers at the height of the 2008 financial crisis.
British finance minister George Osborne on Wednesday criticized in the strongest terms the manipulation of interest rates by RBS.
"What happened at RBS and other banks is totally unacceptable," he told reporters.
"At my insistence, the bankers, not the taxpayers, will pick up the bill. Those people who did wrong will face the full force of the law... In 2013 our reforms are turning people's anger into a positive force for change," he added.
Britain's RBS will pay U.S. and British authorities a total of $612 million and plead guilty to wire fraud in Japan to settle allegations it rigged the London interbank offered rate (Libor), a benchmark used for trillions of dollars of financial instruments ranging from home loans to complex derivatives.
More than a dozen traders at RBS offices in London, Singapore and Tokyo manipulated Libor from at least 2006 until 2010.
In a bid to avoid a political firestorm, the 82-percent state-owned bank will cut into its staff bonuses to pay the fines.
Banks across the world are struggling to rebuild their reputations after the financial crisis, and many have been engulfed in a series of investigations into their past misdemeanors, including fixing benchmark interest rates, money laundering and mis-selling products to customers.
RBS said it would pay 87.5 million pounds ($137 million) to Britain's Financial Services Authority, $150 million to the United States Department of Justice and $325 million to the U.S. Commodity Futures Trading Commission (CFTC).
John Hourican, head of RBS's investment bank, will part company with the bank following the settlement, sources have said, although there is no suggestion he had any knowledge of wrongdoing.
Chief Executive Stephen Hester previously warned that Wednesday would be a "miserable day" for RBS, during which embarrassing emails exposing the extent of collusion between traders are set to be revealed.
In a press release on Wednesday, Hester said: "Libor manipulation is an extreme example of a selfish and self-serving culture that took hold in parts of the banking industry during the financial boom. We will use the lessons learned from this episode as further motivation to reject and change the vestiges of that culture."
RBS said last August it had dismissed staff following its own internal investigation into the Libor scandal.
The revelations could put the future of RBS's investment bank under renewed scrutiny, and are likely to re-ignite calls from critics who want the bank to focus on basic lending activities in its domestic market.
(Read More: RBS Tips UK Back Into Bonus Debate)
Business Secretary Vince Cable said the bank was "in limbo" and should have been fully nationalized when it was rescued in the financial crisis.
Cable said early hopes for a re-privatization of RBS now looked a "distant dream", and resurrected an idea he originally proposed in 2011 that shares in RBS should be distributed to the public, so that they can share in any eventual recovery in the bank's stock price.
British taxpayers are sitting on a loss of about 15.7 billion pounds ($25 billion) after the government pumped in 45.5 billion pounds ($71 billion) to keep RBS afloat.
In contrast, the United States has made tens of billions of dollars from its bank bailouts, with the U.S. Treasury selling the last of its securities in banking giant Citigroup for nearly $900 million on Tuesday.
Shares in RBS traded higher on Wednesday, reflecting relief the fines are not as large as the 500 million pounds ($783 million) some observers had expected.