Pressure mounted for Barclays Plc chief executive Bob Diamond to quit after Britain's third-biggest bank sacrificed its chairman over an interest rate rigging scandal that has dealt "a devastating blow" to its reputation.
Chairman Marcus Agius, who said "the buck stops with me", is the first major scalp from a scandal that cost Barclays a record fine and is likely to involve more banks and embarrass financial regulators.
But the departure of Agius did not take the heat off Diamond, who was running Barclays' investment banking arm when the interest rate manipulation took place.
"The buck in Barclays stops with Bob Diamond, and it is Bob Diamond who must accept responsibility," said John Mann, a Labour politician and a member of a panel of lawmakers who will grill Diamond on Wednesday, and Agius on Thursday.
"He (Diamond) must resign. He's got to go. There is no role for people like him if banking is to be trusted again in this country and if British banking is to restore its tarnished reputation in the world, which of course is of great importance to our economy," Mann said on Sky News.
Barclays has admitted that some of its traders tried to manipulate the London Interbank Offered Rate (Libor), which is used worldwide as a benchmark for prices on about $350-trillion (U.S.) of derivatives and other financial products.
Prime Minister David Cameron has called the scandal "extremely serious", and on Monday said he would establish a full parliamentary inquiry into the banking industry, calling for action "right across the board".
"Last week's events - evidencing as they do unacceptable standards of behaviour within the bank - have dealt a devastating blow to Barclays reputation," said Agius, 65.
"I am truly sorry that our customers, clients, employees and shareholders have been let down," he said.
Britain's Serious Fraud Office said it would decide within a month whether to press criminal charges against any of the banks under investigation.
The record fine imposed on Barclays showed the financial industry needed a fundamental rethink, the FSA said.
"Perhaps the reaction to the penalty imposed last week on Barclays will be a watershed moment, the point when the industry realises that it also has to rise to the challenge and to recognise that things have to change," said Tracey McDermott, acting head of enforcement at the FSA.
The affair comes at a time when banks - already under fire for their role in the financial crisis - are facing a new wave of public outrage over a systems outage at RBS last month and evidence of mis-selling financial products.
Far and wide
Fined $453-million by U.S. and British authorities, Barclays is the first bank to settle in an investigation which is looking at more than a dozen other banks, including Citigroup, HSBC, UBS and RBS.
HSBC said that as a bank that contributes to setting the Libor interest rate it was providing information to authorities, but the FSA said it was not investigating the bank.
"Barclays has become the poster child for this because they have been the first to be assessed by the regulators," Euan Stirling of Standard Life Investments, a major investor which holds some 2 per cent in Barclays, said on BBC radio.
"I think this is going to spread far and wide through the industry," Stirling said.
Smaller shareholders were robust in their demands for Diamond to take responsibility.
"I still think it is going to be hard for Bob Diamond to keep his job. I don't think he has built up enough shareholder goodwill in the past to be able to ride this one out," said a top-25 investor in the bank, who asked not to be named.
Barclays shares were up 3 per cent at 1445 GMT, outperforming a 1.6 per cent rise by the European bank index.
The exit of Agius was not seen as a big blow, analysts said, and a 17 per cent share price crash in the past three trading days looked excessive in light of the hit the bank is likely to suffer.
Conversation with the BOE
Lawmakers this week are likely to quiz Agius and Diamond on what the Bank of England (BoE) and other regulators knew about the rate-rigging.
The hearings could prove embarrassing for the central bank, after sources told Reuters a conversation in October 2008 cited in documents released by U.S. authorities last week was between Diamond and BoE Deputy Governor Paul Tucker.
Some people at Barclays mistakenly believed they had been granted permission to submit artificially low rates for Libor after the conversation, the documents showed.
"It is nonsense to suggest that the Bank of England was aware of any impropriety in the setting of LIBOR," a BoE spokesman said. "If we had been aware of attempts to manipulate LIBOR we would have treated them very seriously."
Barclays has admitted it submitted artificially low estimates of its borrowing costs from late 2007 to May 2009 because it thought rivals were doing the same, and higher submissions would make it appear to be in trouble.
Barclays employees expressed their concern that Libor rates were being set too low to the British Bankers' Association - the UK banking lobby group that is also responsible for setting Libor - the Financial Services Authority, the BoE and the Federal Reserve Bank of New York between November 2007 and October 2008, a U.S. Department of Justice document said.
However, the employees did not provide "full and accurate information" to the authorities, the document said.
Barclays said it would launch an audit of its business practices, led by Michael Rake, its senior independent director, who will move up to deputy chairman.
Rake is seen as a strong candidate to become Barclays' next chairman - especially as he was not appointed to lead the search for a successor - although he already chairs of BT Group and easyJet, and may have to give up those jobs.
Cambridge-educated Agius - whose wealth is estimated at $35-million or more - became chairman at the start of 2007 after more than 30 years as an investment banker and then chairman at Lazard. His wife Kate, a successful art dealer, comes from the Rothschild banking dynasty.
Agius also relinquished his position as chairman of the BBA, a role that is drawn from the senior ranks of one of the banks. The BBA said it would announce a successor in due course.