The conversation was revealed as the industry prepares itself for the publication tomorrow of a review by the Financial Services Authority's managing director Magnus Wheatley on the structure and governance of the setting of the London interbank offered rate.

News agency Bloomberg reported that transcripts of instant messages that have now been removed from public view, show Tan Chi Min, the former head of delta trading at the Edinburgh-based lender, discussing the setting of Libor.

"It's just amazing how Libor fixing can make you that much money or lose if opposite," Mr Tan reportedly said in a message on August 19, 2007, to traders at other banks, including Deutsche Bank's Mark Wong. "It's a cartel now in London," he added.

Mr Tan left RBS during an internal probe into alleged manipulation of rates. The Singapore High Court has sealed an affidavit, filed by Mr Tan, at RBS's request. RBS wants the documents removed from view until investigations by the US Commodity Futures Trading Commission, the US Department of Justice and the FSA are completed.

RBS said: "Our investigations into submissions, communications and procedures relating to the setting of Libor are ongoing.

"RBS and its employees continue to co-operate with regulators."

Mr Wheatley is expected to recommend the use of market trades rather than quotes to compile Libor and to formally end the role of the British Bankers' Association in overseeing it.

It has been reported he will also suggest bankers who make submissions to the benchmark should be regulated.

Kevin Burrowes, UK financial services leader at accountant PricewaterhouseCoopers, said: "The new Libor mechanism will need to be robust, afford greater levels of consumer protection and be subject to greater scrutiny."