The rate-rigging scandal claimed its first scalp on Monday as Barclays confirmed its chairman Marcus Agius is to step down.
Agius, who was chairman for six years, said: "This has been a period of unprecedented stress and turmoil for the banking industry in particular and for the wider world economy in general."
He acknowledged that standards of behaviour at Barclays had been unacceptable and that the affair had dealt a devastating blow to the bank's reputation, saying he was “truly sorry" and the "ultimate guardian of the bank's reputation."
His resignation comes after signs of shareholder moves to replace him from the role. He is due to face MPs on the Treasury Select Committee on Thursday - a hearing that is expected to go ahead irrespective of his decision to quit.
Pressure remains on Barclays chief executive Bob Diamond, who will also face a grilling from the committee, on Wednesday. There were growing questions about how much he knew about what was going on after it emerged that Barclays staff mistakenly thought they had been instructed by the Bank of England to lie in their Libor submissions.
The Financial Services Authority's report into the bank said there had been a misunderstanding arising from a conversation between BoE deputy governor Paul Tucker and an unidentified senior Barclays manager on October 29, 2008.
Barclays was fined £290 million by UK and US regulators for manipulating the Libor, the rate at which banks lend to each other last week.
The bank said Mr Agius will remain in post until an "orderly succession is assured" and added Barclays non-executive director Sir Michael Rake has been appointed deputy chairman.
Mr Agius saud: "I am truly sorry that our customers, clients, employees and shareholders have been let down. Barclays is full of hard-working, talented individuals whose integrity is not in question."
Business Secretary Vince Cable has backed calls for a criminal investigation into bankers involved in the affair. The Liberal Democrat Cabinet minister said the public could not understand why the perpetrators of "what looks like a conspiracy" were allowed to "just walk away".
The potential for prosecutions arising from the scandal has been downplayed by Treasury sources who point out that there are no criminal sanctions in place for manipulating the inter-bank lending rate, or Libor.
Libor is set on a daily basis by panels of banks and used to help set "swap rates" - the borrowing rate between financial institutions. These rates in turn are used to price a vast range of products such as corporate loans and fixed-deal mortgages.
The bank has also agreed to launch an audit, led by Sir Michael, to review "flawed" past practices that have been revealed.
The findings of the inquiry will be revealed in a public report and the bank will produce a new, mandatory code of conduct.
Mr Agius said: "Last week's events - evidencing as they do unacceptable standards of behaviour within the bank - have dealt a devastating blow to Barclays reputation.
"As chairman, I am the ultimate guardian of the bank's reputation. Accordingly, the buck stops with me and I must acknowledge responsibility by standing aside."
He added: "It goes without saying that Barclays will continue to have my wholehearted support in the future."
Labour leader Ed Miliband said the resignation of Mr Agius was not enough, and repeated his call for Mr Diamond to step down.
"I think there needs to be more a more general change of leadership including the chief executive, Bob Diamond," he told ITV Daybreak.
"I do not think it is enough more generally because people just going, resigning, isn't really getting to the bottom of what happened, who is responsible and punishing those who did wrong.
"I want to see criminal sanctions against those who broke the law.
"If you go out and nick £50 worth of goods from your local Tesco's, you are punished, or at least we hope you are punished.
"If you fiddle, lie, cheat, to the tune of millions of pounds you should also have the full force of the law brought against you, in my view."
Ian Gordon, analyst at brokers Investec, urged investors to back Mr Diamond, adding: "Bob is going nowhere."
Mr Gordon said ironically the Libor scandal may "exert fresh pressure" over excess pay in the "bloated" investment arm Barclays Capital.
He added that the litigation risks are being seen as a "multi-bank issue" rather than Barclays-specific, which should take the heat off the banks' shares.
According to reports Agius has also resigned from the board of British Bankers' Association.