Bank of England boss Sir Mervyn King told Barclays its chief executive Bob Diamond no longer had the support of his regulators before he quit, MPs heard on Tuesday.
The revelation came as Barclays confirmed Diamond will walk away with around £2m after waiving his entitlement to a potential £20m in deferred share bonuses.
Barclays Chairman Marcus Agius told MPs that Diamond had waived the £20m pay-off
Appearing in front of the Treasury Select Committee, Barclays chairman Marcus Agius said the Financial Services Authority (FSA) changed its stance on Diamond's position at the helm in the days after the rate-rigging scandal broke.
He also admitted that Barclays' relationship with the regulator was "strained", but denied allegations they were in "a pretty desperate state".
MPs were told Diamond had decided to voluntarily forgo his multi-million pound bonus entitlements after he quit as chief executive last week as public anger mounted.
Diamond, whose severance package amounts to a year's salary and pension cash contribution, said he hoped the agreement "will help close this chapter and allow Barclays to move forward and prosper" after the bank was fined £290m for attempting to fix the interbank borrowing rate Libor.
Prime Minister David Cameron's official spokesman said: "I think the decision to forgo the bonus is a sign that they understand public concerns and that they understand that there is a need for a change in the culture of banks."
Agius - who also resigned, but will remain at the bank while a successor to Diamond is found - revealed that Sir Mervyn called him into an emergency meeting to explain "in no uncertain terms" that the FSA believed Diamond needed to go.
"The public outcry had been far greater than thought," said Agius.
He said it was clear from the meeting with Sir Mervyn that the FSA thought Agius's resignation was inadequate and that further action was necessary.
But he stressed the FSA had not given the impression Diamond should resign when the bank's Libor fixing settlement was first announced the previous week.
The cross-party committee of MPs painted a picture of a chequered history between the FSA and Barclays leading up to the rate rigging scandal.
The committee cited a letter from the FSA flagging the regulator's concerns about "a pattern of behaviour" in which Barclays sought to gain advantage through the use of complex structures which are "at the aggressive end of interpretation of the relevant rules and regulations".
But Agius said: "When any bank deals with its regulator, it has to deal with complex matters, it's not like a speed camera catching you for going more than 30mph.
"Quite often, the points are open for interpretation and debate and we have chosen to debate with the regulators."
Agius was the first executive to quit when the scandal emerged earlier this month, but his resignation was not enough to prevent Diamond from being forced out.
In a fierce exchange with the committee, one MP said: "A great British bank has been dragged through the mud - are you ashamed?"
Agius replied: "I regret deeply what's happened to Barclays. I'm truly sorry."
He said the board "welcomed" the move by Diamond to forgo his long-term bonus incentives.
Tuesday's announcement follows what are said to have been intense negotiations over Diamond's leaving deal.
Agius said the former chief executive was thought of highly by shareholders and clients.
"The board deeply regrets the circumstances that led to Bob resigning his positions at Barclays.
"Despite having no personal culpability, he recognises more than anyone the negative attention that they have generated and has taken characteristically strong action to address that," he added.