Media playback is unsupported on your device Media caption Prime Minister David Cameron: "Bankers who have acted improperly should be punished"

Prime Minister David Cameron has announced a full parliamentary inquiry of the banking sector following the Barclays rate-rigging furore.

He told the House of Commons the manipulation of the Libor interest rates had been a "scandal".

The review will run alongside a narrower inquiry specifically into the Libor market, also announced on Monday.

The comments follow news the Serious Fraud Office is considering whether to bring criminal charges.

In addition, Barclays will conduct its own "root and branch review" after receiving a fine of £290m ($450m) over the Libor affair.

Mr Cameron said the full parliamentary committee of inquiry would be headed by the chairman of the Treasury Committee, Andrew Tyrie.

"This committee will be able to take evidence under oath, it will have full access to papers and officials and ministers including ministers and special advisers from the last government," he said.

Mr Cameron said the review should ensure the UK had the "toughest and most transparent rules of any major financial sector".

He added: "Bankers who have acted improperly should be punished," and it was important to learn the lessons of the affair.

But Labour leader Ed Miliband said the review did not go far enough, calling instead for an inquiry which was independent of bankers and politicians.

We all know that these events are not representative of our culture, and it is my responsibility to get to the bottom of that and resolve it Bob Diamond, Barclays chief executive in a letter to staff Barclays' letter in full

"I'm not convinced by his way forward because I do not believe it measures up to the scale of what is required," he said.

Mr Tyrie, who will chair the parliamentary inquiry, said this would be a "ringfenced job" and was not about "trying to work out how to reform the whole banking industry".

Instead he said it would be looking specifically at one question.

"What does the Libor scandal, what does this scandal in the market, where people have made money by rigging the market, say about the standards and the corporate culture of banks?," he said.

The inquiry comes after a series of issues that have undermined public confidence in the financial sector, including the mis-selling of billions of pounds worth of payment protection insurance, and the mis-selling of a complex hedging insurance designed to protect small firms against rises in interest rates.

Public anger

Other banks are being investigated over the Libor affair, and it has emerged that Royal Bank of Scotland has sacked four traders over their alleged involvement.

On Monday, Sir Philip Hampton, chairman of the RBS, welcomed the inquiry.

"I fully understand why the politicians have reached that conclusion. The public's anger at some of the things that have happened in the banking industry is very obvious and I think some process, some formal process, to address that anger and to address some of the evident failings of the banking industry is very sensible," Sir Philip said.

Also on Monday, Chancellor of the Exchequer George Osborne told the Commons that there would be a second inquiry, this one specifically into the operation of the Libor market.

This review will be led by Martin Wheatley, chief executive-designate of the Financial Conduct Authority, and will look at the regulation and governance of the Libor market, as well as use of data and price-setting mechanisms.

The inquiry will be able to call witnesses under oath, and is expected to report its findings by the end of 2012, Mr Osborne said.

The Banking Bill would be amended to reflect the inquiry's recommendations, he added.

The chancellor also said that fines on the banking sector, including the £290m imposed on Barclays, will be used to benefit the taxpayer and not paid to other banks via the Financial Services Authority, as had been thought.

He said no decision had yet been taken on where the money would be spent. "I'm sure this House will have a lively debate on that," he said.

Prosecution

The MP who's been asked to chair an inquiry into banking has told me that this is "a ringfenced job" which is not trying to work out how to reform the whole banking industry

The SFO said it was working closely with the Financial Services Authority and was now "considering whether it is both appropriate and possible to bring criminal prosecutions".

Meanwhile Barclays' chief executive Bob Diamond said in a letter to staff that he would "get to the bottom" of what happened and resolve it.

"We are being thorough and robust while also ensuring that we undertake due process.

"We are reviewing those directly responsible and those in supervisory roles. We have the full range of tools at our disposal, from clawing back compensation to asking people to leave the bank," he said.

Marcus Agius earlier confirmed his resignation as chairman of Barclays over the scandal, saying: "the buck stops with me".

Mr Miliband has called for Mr Diamond, who ran Barclays investment bank BarCap during the crucial period, to resign.

The Labour leader said it was important to restore trust in British banks. "I really don't think that can be done by Bob Diamond," he said.

Former Barclays director Baroness Wheatcroft told BBC News that Mr Agius was currently "carrying the can" but said Mr Diamond's resignation was now "inevitable".

Blow to reputation

Mr Diamond will appear before MPs on the Treasury Committee on Wednesday, followed by Mr Agius on Thursday.

Mr Agius has also stepped down as chairman of the British Bankers' Association, which is responsible for compiling Libor.

Media playback is unsupported on your device Media caption Nick Clegg told CBBC's Newsround that banks are "a source of shame"

Mr Agius, who also serves on the BBC's executive board, said last week's events were evidence of "unacceptable standards of behaviour within the bank".

He said the findings had "dealt a devastating blow" to Barclays' reputation.

Barclays' board has launched an audit of its business practices, which will be conducted by an independent body and report to the new deputy chairman, Sir Michael Rake.

The bank promised:

a "root and branch review" of its "flawed" past practices

a public report of the audit's findings

a new mandatory code of conduct for all staff

Barclays will establish a "zero tolerance policy" to anything that damages its reputation, the bank said in the statement.

Sir Michael Rake, BT chairman and senior independent director at Barclays, has been appointed deputy chairman at the bank. He is seen as a likely successor to Mr Agius.

Email trail?

Mr Agius will stay on as chairman while Sir John Sunderland, a non-executive director of Barclays, looks for his replacement.

Meanwhile, the Bank of England (BoE) has been drawn into the affair after a whistleblower claimed the existence of emails between the central bank and Barclays management.

According to a report on the BBC's Newsnight, there may be an email exchange that could have led some traders at Barclays to believe the manipulation of Libor was sanctioned by the Bank of England.

Newsnight understands that the Treasury Select Committee is examining claims that an email trail exists.

However, the BoE told Newsnight that it was not aware of any emails, and Barclays said it could not comment at this stage.

Barclays was fined after the Financial Services Authority (FSA) found its traders had lied about the interest rates other banks were charging it for loans. Investigations are also under way at RBS, HSBC, Citigroup and UBS.

Giving a lower reading than the true rate would give the impression that Barclays was considered a better lending risk than it actually was.

Reporting a higher reading than the real rate could have inflated trading profits artificially, misleading investors and regulators.

The FSA found evidence that Barclays, sometimes working with staff at other banks, had tried to manipulate Libor (the London Inter-Bank Offered Rate) and its European equivalent Euribor between 2005 and 2009.