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Barclays bosses must pay for rate-rigging scandal, says George Osborne

Barclays executives must "pay the price" for rigging interest rates in a scandal caused by a culture of systematic greed and irresponsibility, British Chancellor of the Exchequer George Osborne said today.

The Chancellor said Barclays and other banks had been in "flagrant breach" of their duties by allowing traders to distort basic data on the key interest rate called Libor.

He said the scandal was a "shocking indictment of the culture at banks like Barclays", as mortgage holders, credit card users and businesses may have been charged too much for their loans.

The Chancellor said ordinary people have paid a "very heavy price" because of the banks and executives must now answer for their greed.

The Goverment will now try to claw back the £290m (€360m) fine paid by Barclays to settle the Libor case.

Currently, it will be re-distributed among British banks in the form of lower fees to the regulator.

The bank's share price dropped 16pc, as Bob Diamond, its chief executive, faced mounting pressure to resign.

Mr Osborne said the misdemeanours were typical of an "age of irresponsibility" as Barclays was "not alone" in its bad practices. He said HSBC, Royal Bank of Scotland, UBS and Citigroup are also under investigation.

"As far as the chief executive of Barclays is concerned, he has some very serious questions to answer today," Mr Osborne said.

"What did he know and when did he know it? Who in the Barclays management was involved, and who therefore should pay the price?"

He said the law many be changed to allow the Financial Services Authority to prosecute traders under criminal law for manipulating libor.

More bankers are likely to come under investigation in the coming months, he added.

"Through 2005, 2006 and early 2007 we see evidence of systematic greed at the expense of financial integrity and stability."

Earlier, David Cameron described the situation as an "extremely serious scandal".

"They've had a very large fine and quite rightly. But frankly the Barclays management team have some big questions to answer," he said.

"How did this happen? Who was responsible? Who's going to be held accountable for it? These are issues they need to determine and determine quite rapidly.

"In terms of what happens next, I would say that the regulator should use all the powers and means at their disposal to pursue this in the way they feel is appropriate."

Mr Cameron has said that responsibility for the Barclays Libor scandal "goes all the way to the top of the organisation.”

“I’m determined we learn all the lessons from what has happened at Barclays,” Mr Cameron said as he arrived at a European summit in Brussels.

“People have to take responsibility for the actions and show how they’re going to be accountable for those actions. It’s very important that goes all the way to the top of the organisation.”

Barclays has come under fire from shareholders and political figures after investigators from the Financial Services Authority found evidence it tried to manipulate Libor for years.

The Prime Minister's spokesman this morning raised the possibility of criminal investigations by the authorities into the banking industry over the scandal.

"Criminality has been a point of discussion between the FSA and the Treasury," she said.

Shares in Royal Bank of Scotland and Lloyds also fell sharply. They are among around a dozen banks which are also being investigated.

Labour leader, Ed Milliband, said those who broke the law at Barclays should face criminal prosecution.

He told Unite: "This cannot be about a slap on the wrist. When ordinary people break the law, they face charges, prosecution and punishment. The same should happen here. The public who are paying the price for bankers' irresponsibility will expect nothing less."

Mayor of London Boris Johnson said the attempted manipulation was "very, very dodgy practice indeed" and urged all banks to "come clean". He added: "I think that if there has been criminal activities then clearly people need to pay the price."

Lord Oakeshott, a former Liberal Democrat Treasury spokesman, described the bank as “a casino that was rigging the wheels and loading the dice”.

“If Bob Diamond had a scintilla of shame, he would resign,” he said. "If Barclays' board had an inch of backbone between them they would sack him."

Martin Taylor, the former chief executive of Barclays, told BBC Radio 4's Today programme that the board of Barclays was facing questions about how it restores the reputation of the business. "There's not much to a bank except its licence, computer systems and reputation," he said. If a bank has a "policy of systematic dishonesty" he added, then it has "some rebuilding to do."

"It's hard to believe that a policy which seems so systematic was not known to people at or near the top of the bank", added Mr Taylor. But said that the "question of how high up knowledge goes is something only Barclays can answer".

He said: "If [Mr Diamond] stays, it has to be because the board believes he’s the only person who can turn this around. He is a great leader and has a great following. If he can help clean out the stables, then he should stay. Only the board can judge that."

Sir George Mathewson, the former chairman and chief executive of Royal Bank of Scotland, also told the Today programme that if senior management knew what was going on, that would be "unacceptable".

Asked whether Mr Diamond should resign, he said: "I wouldn't make as quick a judgement as that. I think that possibility should exist. I think that his case is interesting in as much he’s really the first chief executive of a UK bank to command the sorts of rewards he’s receiving and there should be a very high expectation of him."

Mr Diamond, and three of the bank’s senior managers including finance director Chris Lucas, said they would not take bonuses this year as a result of the regulator’s findings.

However, one major shareholder said the move was insufficient and claimed senior executives should be forced to resign.

“Taking off a couple of million from Bob’s bonus isn’t enough. People should be considering resignations. This has happened under the board’s nose. Where is the accountability?” he said.

Libor - the London Interbank Offered Rate - is the rate is used to fix the cost of borrowing on mortgages, loans and derivatives worth more than $450 trillion (£288 trillion) globally. The FSA fined Barclays a record £60m, saying staff at the bank had repeatedly made false submissions to help set Libor.

Emails uncovered as part of a three-year investigation into claims that Barclays and other banks attempted to inflate and suppress Libor show the extent of the scandal.

Lord Myners, former City minister, told the BBC's Newsnight that any Barclays staff responsible for manipulating the Libor rate should face the prospect of going to prison.

"This is the most corrosive failure of moral behaviour I have seen in a major UK financial institution in my career," he said.

"I think fines and public criticism will not stop these behaviours. These behaviours will not stop until the people perpetrating it or responsible for overseeing them face the prospect of criminal charges and the prospect of going to jail."

Chris Leslie, a Labour shadow Treasury spokesman, suggested that a criminal investigation may be necessary.

Barclays has already dismissed several staff over Libor manipulation and is in the process of firing others linked to the false submissions.

There is no suggestion that Mr Diamond or other executive directors knew what was going on at the bank.

Mr Diamond apologised for the bank’s actions and said he was “sorry that some people acted in a manner not consistent with our culture and values”.

Marcus Agius, chairman of Barclays, said: “The board takes the issues underlying today’s announcement extremely seriously and views them with the utmost regret. Since these issues were identified, the authorities acknowledge that Barclays management has co-operated fully with their investigations and taken, and continues to take, prompt and decisive action to correct them.”