Serious Fraud Office investigators are in talks with the City watchdog over the Barclays rate-rigging scandal that has rocked the banking industry, the Chancellor said on Thursday.
George Osborne told MPs the affair exposed yesterday was "a shocking indictment of the culture of banks like Barclays in the run-up to the financial crisis".
The Financial Services Authority (FSA), which along with US regulators landed Barclays with a £290 million fine for manipulating the rates at which banks lend to each other, was holding talks with the Serious Fraud Office (SFO), he said.
The Chancellor echoed comments from the Prime Minister that Barclays "had serious questions to answer" as pressure mounted on chief executive Bob Diamond to step down.
Shares in Barclays plummeted 17%, wiping £4 billion off its market value, while taxpayer-backed Royal Bank of Scotland dropped 14% as Mr Osborne said it was among several global banks also being investigated.
Mr Osborne added: "It is clear that what happened at Barclays, and potentially other banks, was completely unacceptable, was systematic of a financial system that elevated greed above all other concerns, and brought our economy to its knees."
Turning to Mr Diamond, who waived his bonus for 2012 in light of the scandal, the Chancellor said: "As far as the chief executive of Barclays is concerned, he has some very serious questions to answer today.
"What did he know and when did he know it? Who in the Barclays' management was involved and who, therefore, should pay the price?"
The penalties from UK and US regulators, including a record £59.5 million fine from the FSA, followed claims that Barclays manipulated the Libor (London interbank offered rate) and Euribor interbank lending rates.
The rates are set on wholesale money markets - where banks lend to each other - which in turn affects rates they pass on to customers through credit cards, loans and mortgages.
Mr Diamond, who was in charge of Barclays Capital at the time the breaches occurred, apologised and said nothing was more important to him than "having a strong culture at Barclays".
Senior executives Jerry del Missier, Rich Ricci and chief financial officer Chris Lucas will also waive their 2012 bonuses.
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