George Osborne has told bankers they must give up their bonuses to pay international fines imposed for the Libor rate-rigging scandal.
The Chancellor is understood to have "laid down the law" to state-backed Royal Bank of Scotland in recent days as it braces itself for a major penalty from United States regulators.
Senior RBS figures were warned that leaving taxpayers to cover the US penalty for the bank's role in fixing the lending rate, which governs the price of more than 500 trillion US dollars-worth of loans and transactions around the world, would be 'totally unacceptable'.
RBS is rumoured to be preparing to hold back on some perks in preparation for the fines. The bank is thought to be close to reaching a deal with regulators in Britain, America, Japan and Singapore and faces paying out an estimated £350 million.
A senior Treasury source said: "Fixing the Libor market is a symbol of all that went wrong with the banking system over the past 10 years. We are now putting those things right.
"Ahead of any other country, we legislated to make abuse of the system a criminal offence and are stripping the banks of the power to administer it themselves.
"The authorities are rightly pursuing those individuals who abused the system; and the regulators are rightly fining the banks they worked for.
"We all know there are Libor investigations ongoing into RBS in both the UK and the US. Any UK fine will already go to the public, and the Chancellor has made it clear that on this occasion the bill for any US fine should be paid for by the bankers, and not the taxpayer."
Last year Barclays was fined a total of £290 million, of which £58.5 million was in the UK, while UBS was hit by a global fine of £940 million, including a £160 million UK penalty. Barclays' fine was given to military good causes.
Ministers are reforming regulation to create a new criminal offence that covers making misleading statements that affect Libor and are also tightening up existing rules.
The Press Association, photo by HM Treasury