The Royal Bank of Scotland Group is reportedly in negotiations with regulators to settle charges the bank manipulated Libor. It would follow a similar settlement with Barclays just weeks ago, which ultimately led to the ouster of its CEO, Bob Diamond. But RBS chief executive Stephen Hester is no Bob Diamond.
Regulators have moved quickly to investigate other banks involved in rigging Libor, but after the ordeal endured by Barclays, no bank wants to be next in line. 
While RBS certainly will face a rough time following a settlement, particularly if there are damaging recordings of its traders, CEO Steven Hester has several things in his favor that will help the bank weather the storm.
Most important, Hester is new to the bank and most of the rate rigging is likely to have happened before his arrival in 2008. He was brought in after the UK government rescued the bank from collapse and he has earned high marks for his performance. That’s a stark contrast with Bob Diamond, who ran the Barclays unit that was involved in rate manipulation, and who had a strained relationship with banking regulators.
Hester also has moved to prepare the market for the news. In a wisely timed interview, he acknowledged that the bank was involved in the Libor scandal and would face a penalty from regulators.
Still, Hester will need to act fast and decisively if he is to limit the damage from the settlement. He should move quickly to suspend any executives involved in the practice – traders, compliance personnel and senior managers.
He should also signal is readiness to lead a reform of the Libor-setting process. As an incumbent CEO of a major bank who is largely untainted by past practices, Hester is in a unique position to help the industry move beyond the scandal. He can credibly support proposals for reform of Libor or the creation of an alternative index, like a traded market rate.
There are also a few things Hester should not do. For one thing, he should not rely on any help from regulators. Bob Diamond mistakenly thought regulators’ acknowledgement of Barclays’ cooperation with the Libor investigation would blunt criticism of the bank. It did not. Any nice words the regulators might include in a press release won’t be of much help to RBS either.
And whatever else he might do, Hester must check the impulse to issue a wordy, self-serving and defensive letter to his employees. It was the undoing of Bob Diamond. Keep it short and humble.