The British government has ordered an independent review into the workings of key lending rates between banks, after Barclays was found guilty of rigging them, a spokeswoman for Britain's Prime Minister said on Saturday.
The decision follows news that US and British authorities fined Barclays $450 million for manipulating the London Interbank Offer Rate (Libor), the interest rate on loans that banks make to each other.
More banks are expected to be drawn into the scandal, which has fuelled public outrage at the culture and practices of the banking industry and prompted calls from lawmakers across the political spectrum for an inquiry.
The government plans a short, urgent review that would allow it to amend the Financial Services Bill currently going through parliament, the Prime Minister's spokeswoman said. The review will examine Libor and the possibility of criminal sanctions.
When asked about a full public inquiry, Prime Minister David Cameron referred to a series of inquiries that had already taken place.
“Let's take our time, think this through carefully...Let's get this right,” he told BBC television.
A public inquiry would be a risky step for a government already under fire after a string of embarrassing revelations in a year of public hearings following last year's phone-hacking scandal.
The American boss of Barclays, Bob Diamond, has been summoned to appear before British lawmakers on Wednesday July 4 to answer questions about the scandal.
On his last appearance before a parliamentary committee last year Diamond said it was time for bankers to stop apologising. He is now under intense pressure to quit the bank, where he ran the investment banking arm Barclays Capital when the interest rate rigging occurred in 2005-2009.
“Parliament and the public need to know what went wrong and whether the perpetrators have been rooted out,” said Andrew Tyrie, head of Parliament's Treasury Select Committee, which will be questioning Diamond.
“We also need to be given confidence that this has been put right.”
Barclays was the first bank to settle in an investigation that is looking at other large financial institutions in Europe, Japan and North America, including Citigroup, HSBC and UBS. No criminal charges have been filed but Britain has called in the fraud squad to investigate possible crimes.
Bank of England Governor Mervyn King launched an angry attack on British banking culture on Friday, saying something had gone very wrong with an industry which he derided for resorting to “deceitful” methods to make money.
The country's most powerful monetary official, he said a fundamental overhaul was needed for a sector that is reeling from a string of financial scandals.
Britain's banking industry, one of the largest cogs in Britain's economy and important for tax revenue, has been knocked by a series of damaging headlines.
In the same week as the LIBOR scandal erupted, Britain's Financial Services Authority said it had settled with four banks - Barclays, RBS, HSBC and Lloyds - after finding evidence they mis-sold products to protect small businesses against a rise in interest rates.
Justice Secretary Ken Clarke said that if any of the ongoing investigations revealed suspected criminal offences “they should be brought to trial”.
“We are very bad at prosecuting financial crime in this country,” he told BBC radio on Saturday.
“That is why when we're setting up the National Crime Agency we should look at the record of the Serious Fraud Office. I suspect financial crime is easier to get away with in this country than practically any other sort of crime.” - Reuters