"The Libor situation is on our agenda and is a stark reminder of the damage that individual wrongdoing and inadequate systems and controls can have in terms of financial and reputational impact," Chief Executive Stephen Hester said in reporting first-half results.

RBS said it was co-operating with investigations by governments and regulators into its submissions and procedures around the setting of Libor and other inter-bank lending rates.

Last month sources with knowledge of the matter said RBS had fired four traders in connection with the affair. New details from court documents and sources suggest that groups of traders working at three major European banks, including RBS were heavily involved.

The bank said on Friday it was being investigated by regulators in the United States, Britain and Japan and by competition authorities in Europe, the United States and Canada.

RBS said it was not possible to reliably measure what effect the investigations would have, including the timing and amount of fines or settlements. Rival Barclays was fined $453 million last month by U.S. and UK regulators.

The issue has heaped pressure on Hester, who was appointed CEO four years ago with a remit to rebuild the bank and its reputation following the bailout.

Government sources told Reuters on Thursday that it had no plans to fully nationalize RBS, contradicting a report in the Financial Times.

The bank, which is 82 percent-owned by the government, also reported on Friday it made a first-half operating profit of 1.83 billion pounds ($2.8 billion), down from 1.97 billion in the same period last year.

The bank made a statutory pretax loss of 1.5 billion pounds, which included a 2.9 billion pounds accounting loss due to a rise in the value of its own debt.

RBS said it had also taken a 125 million-pound hit from costs arising from a computer systems failure in June which prevented customers using their accounts and could face additional costs when the full scale of the disruption becomes clear. It said regulators in the UK and Ireland were looking at the incident and it could face legal claims from customers affected by the glitch which resulted in payments not being processed properly.

Britain's banks are also facing a bill running into billions of pounds to address claims of mis-selling various financial products.

RBS confirmed it had set aside a further 135 million pounds to compensate customers mis-sold loan insurance taking its total provision so far to 1.3 billion pounds.

RBS also said on Friday the planned flotation of its insurance arm, Direct Line, was on track and planned for October this year.

Shares in RBS were up 3 percent at 210.7 pence by 0734 GMT, when the Stoxx Europe 600 banking sector index was up 1.7 percent.

($1=0.6444 British pounds)

(Additional reporting by Steve Slater; Editing by Greg Mahlich)

• A Permanent Economic Emergency