Risk-taking bankers should foot a multimillion-pound fine for the Libor rate-fixing scandal and not expect taxpayers to pay the bill, Vince Cable said.
The Business Secretary spoke out as Royal Bank of Scotland (RBS) was braced for criminal charges and a £500 million penalty for its role.
The 81% state-owned bank is likely to announce the settlement with the Financial Services Authority (FSA) and American regulators.
But it is under sustained Government pressure to meet the fine from cash from its bonus pot amid reports traders are still set for payouts worth hundreds of millions of pounds for 2012.
"Obviously it doesn't make any sense to pass on the costs of past misbehaviour on to the customers or to the taxpayer," Cable told ITV's Daybreak.
"There's got to be individual responsibility here," he said - renewing a warning to the bank made by Chancellor George Osborne earlier this week.
"It's one thing to fine an institution, but an institution is made up of people who in many cases better themselves by behaving badly and we've got to sort out where ethical misbehaviour leads to sanctions.
"It is bizarre to us people as to why activity that most people would believe is fraud is not pursued."
The lender is one of about 20 banks 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.
Yesterday it emerged RBS investment banking boss John Hourican is to step down.
He is reported to be in line for a parting gift of a year's salary in lieu of notice, worth around £700,000, but had been asked by the bank's board to forfeit the £4 million he is owed in shares.
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 bailout at the height of the financial crisis and has already overseen a mammoth restructuring, with the division's workforce slashed by around 10,000.
Cable also said there was "no immediate prospect" of RBS being reprivatised, but indicated he was still keen on eventually distributing the bank's shares among the public.
He told BBC Radio 4's Today programme that the plan was not Government policy, but added: "Certainly my party has advocated that option and we want to keep that option alive.
"There is no immediate prospect of this happening, but we need to have that debate, and in and around the next general election and afterwards we can look at the various options."
He said the future of RBS had not been settled.
"There is no immediate prospect of it being reprivatised," he said. "The share price doesn't allow that, there would be a massive loss, it isn't going to happen.
"There is a variety of options. It can remain in semi-public ownership for a prolonged period of time, it could be reprivatised when the positions are better, it could be mutualised, shares given to the public, the kind of thing my party, the Liberal Democrats, have been advocating.
"Those options are all open and we haven't foreclosed on any of them."
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