Royal Bank of Scotland (RBS) is expected to face criminal charges and a £500 million fine for its role in the Libor rate-rigging scandal.
The bank is likely to announce the settlement with the Financial Services Authority (FSA) and American regulators, a day after it emerged investment banking boss John Hourican is to step down.
RBS - which is 81% state owned - is thought to be under pressure from the Government to pay the fine with cash from its bonus pot to ensure taxpayers do not suffer, but the report suggests traders are still set to receive bonuses worth hundreds of millions of pounds for 2012.
The lender is one of about 20 banks which are being investigated over involvement in manipulating the rate, which governs the price of more than 500 trillion US dollars-worth of loans and transactions around the world, including household mortgages.
RBS's fine is set to dwarf the £290 million settlement agreed by Barclays last year over its involvement.
American prosecutors, who have already charged two former employees of Swiss bank UBS over the scandal, are said to be keen to press criminal charges at RBS. UBS has already agreed a near £1 billion settlement with regulators.
Mr Hourican will leave the bank at the end of the month and receive a parting gift of a year's salary in lieu of notice, worth around £700,000, Sky News reported. He was asked by the bank's board to forfeit the £4 million he is owed in shares, the news channel said.
Mr Hourican was widely expected to shoulder the blame for RBS's role in the interbank rate-rigging affair, although he is not believed to be directly implicated. He has headed up RBS's wholesale bank since the group's bail-out at the height of the financial crisis and has already overseen a mammoth restructuring, with the division's workforce slashed by around 10,000.
It is understood the taxpayer-backed lender plans to announce a shake-up that will see its markets business split from its international banking division.
Business Secretary Vince Cable said individuals must take responsibility for "ethical misbehaviour" at banks. He said: "Obviously it doesn't make any sense to pass on the costs of past misbehaviour to the customers or to the taxpayer. That's why the Chancellor has said that the fine must be borne by people inside the bank. There's got to be individual responsibility here."