Royal Bank of Scotland will raid its bonus pool to help pay for its Libor fixing fines after the Chancellor made it clear the penalties must not hurt the taxpayer.
It will recoup around £300m from the 2012 pool and claw-backs of awards from previous years after Mr Osborne said fines should be paid for by the bankers only.
RBS said around 1,500 investment bankers will bear the brunt of the bonus cuts and claw-backs.
Mr Osborne's intervention came after fears the Bill would see the taxpayer suffer, given that it remains 81% state-owned after the bank's £45bn bailout in 2008.
Under the settlement, £87.5m of the £391m total will go to the Financial Services Authority (FSA), with the remaining sum split between the US Department of Justice and the US Commodity Futures Trading Commission (CFTC).
While most fines will go to the US authorities, some will end up back in the UK public purse, as banking sector penalties made by the FSA are now paid to the Treasury. A welcome change in the rules made by Mr Osborne.
Previously the FSA, funded by annual bank levies, would use fines to reduce levies for other banks. Only money left after FSA investigation and enforcement costs will go to the Exchequer.
Here are some extracts released by the US CFTC, which investigated the manipulation:
August 20, 2007
Senior Yen Trader: the whole HF (hedge fund) world will be kissing you instead of calling me if libor move lower
Yen Trader 1: ok, i will move the curve down 1bp maybe more
Senior Yen Trader: maybe after tomorrow fixing hehehe
Yen Trader 1: fine will go with same as yesterday then
Senior Yen Trader: cool
Yen Trader 1: maybe a touch higher tomorrow
August 20, 2007
Senior Yen Trader: this libor setting is getting nutss
Bank A Trader: im puzzled as to why 3m libor fixing not coming off after the FED action
Bank B Trader: [UBS] is lending dolls through my currencies in 3 month do u see him doing the same in urs
Senior Yen Trader: yes he always led usd in my mkt the jpy libor is a cartel now ... its just amazing how libor fixing can make you that much money ... its a cartel now in london they smack all the 1yr irs ..and fix it very high or low