Royal Bank of Scotland is fined almost 400m for its role in the Libor rate-fixing scandal, the third bank forced to pay a penalty by regulators in Britain and the US.

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The financial penalty was agreed with Britain's Financial Services Authority (FSA) and American regulators. The FSA levied a fine of £87.5m, while US regulators agreed a sum of more than £300m.

The Chancellor George Osborne condemned the role RBS played in fixing the Libor rate as "totally unacceptable" and said the taxpayer would not pick up the bill for the fines. RBS said the fines would be funded from the bank's bonus pot.

The head of investment banking at RBS, John Hourican, is stepping down, even though he is not implicated in the affair.

He will receive a year's salary in lieu of notice, worth around £700,000, but will forfeit the £4m bonus he is owed in shares. Investigators found that 21 RBS employees had been involved in wrongdoing; those responsible have now left the bank.

Royal Bank of Scotland is fined almost £400m for its role in the Libor rate-fixing scandal, the third bank forced  to pay a penalty by regulators in Britain and the US (Getty)

But the FSA concluded that RBS as a firm had not engaged in deliberate misconduct, nor had Libor submissions been suppressed on the orders of senior management.

The government, which has an 81 per cent stake in RBS, wanted the bank to pay the fines from money earmarked for bonuses.

'Behaving badly'

Business Secretary Vince Cable told ITV's Daybreak: "Obviously it doesn't make any sense to pass on the costs of past misbehaviour on to the customers or to the taxpayer.

"It's one thing to fine an institution, but an institution is made up of people who in many cases better themselves by behaving badly and we've got to sort out where ethical misbehaviour leads to sanctions.

"It is bizarre to us people as to why activity that most people would believe is fraud is not pursued."

RBS, which was bailed out by the government during the financial crisis in 2008, is one of about 20 banks investigated over the manipulation of the London inter-bank offered rate (Libor).

This rate governs the price of loans and other financial transactions around the world, including household mortgages.

RBS's fine dwarfs the £290 million settlement agreed by Barclays last year over its involvement in the scandal, which led to the resignation of Bob Diamond as chief executive.

American prosecutors, who have already charged two former employees of Swiss bank UBS, were reported to be keen to press criminal charges at RBS.

UBS has already agreed a near settlement of almost £1bn with regulators.