Shareholders urged to control abuse of the banking system

He said that nobody at Barclays was prepared to take responsibility for the rate-rigging scandal that has engulfed the company in recent days and that shareholders ought to take action.

Ministers have also announced an independent review into the inter-bank lending rate in the wake of revelations that it was rigged by Barclays and other financial institutions.

Mr Cable said: “Regulators are a backstop: they don’t own banks.

“The governance at the top of our leading banks has been shown to be lamentably weak. No one at the top of Barclays will take responsibility for systemic abuse.”

He added: “Shareholders, the owners, have a major responsibility here. I am bringing in legislation to strengthen their control over pay and bonuses, through binding votes, but shareholders have to get a stronger grip on weak boards and out-of-control executives.”

Barclays’ chief executive Bob Diamond is facing growing demands for his resignation in the wake of the scandal and there appeared to be moves by investors against the bank’s chairman, Marcus Agius.

The Government said the independent review will consider the future operation of the so-called Libor rate and the possibility of introducing criminal sanctions for its manipulation.

The move did not satisfy Labour, however, whose leader Ed Miliband insisted the public would not accept anything less than a full-scale independent inquiry into the culture and practices of banking.

His call came after the Financial Services Authority uncovered “serious failings” in the sale of complex financial products to small businesses, just days after the rate-rigging affair emerged at Barclays.

Taxpayer-backed Royal Bank of Scotland has also confirmed it is being investigated for manipulating the rates at which banks lend to each other.

Treasury sources said its review, to be headed by an as-yet-undisclosed independent figure, would ensure a speedy response to the issue, resulting in amendments to the Financial Services Bill this summer.

Ministers are considering setting up a separate review into the professional standards of bankers.

Prime Minister David Cameron said the Government would ensure “the criminal law can go wherever it needs to”.

Asked about calls for a wide-ranging inquiry, he said: “Let’s take our time, think this through carefully... That’s what I’m determined to do, and that’s what we will do.”

But Mr Miliband said the Prime Minister was “out of touch” and warned that voters would not accept “the establishment closing ranks”.

He called for an inquiry along the lines of Lord Justice Leveson’s into the media.

“I have news for David Cameron – the people of this country want a moment of reckoning for our banks,” he told a Fabian Society conference in London.

“The British people will not tolerate the establishment closing ranks saying we don’t need an inquiry. They want a light shone into every dark corner of our banking system. They want bankers held to account. They want the system rebuilt.”

Barclays was fined £290m by UK and US regulators for manipulating the rate at which banks lend to each other .

More details of the fine emerged yesterday with a statement on the FBI’s website which said Barclays had agreed to pay the Department of Justice £100m.

It added: “According to the agreement, between 2005 and 2007, and then occasionally thereafter through 2009, certain Barclays traders requested that the Barclays Libor and Euribor submitters contribute rates that would benefit the financial positions held by those traders.

“The requests were made by traders in New York and London, via electronic messages, telephone conversations, and in-person conversations.

“The employees responsible for the Libor and Euribor submissions accommodated those requests on numerous occasions in submitting the bank’s contributions. On some occasions, Barclays’ submissions affected the fixed rates.

Lord Turner, chairman of the Financial Services Authority, said there had already been “significant steps” to prevent the Libor scandal happening again and that he did not believe similar behaviour was taking place now.

But he said the malpractice was not covered by criminal law.

On Friday, the FSA revealed separately that Barclays, HSBC, Royal Bank of Scotland and Lloyds Banking Group had agreed to pay compensation to customers who were mis-sold interest-rate hedging products.

Some 28,000 of the products have been sold since 2001 and may have been offered as protection – or to act as a hedge – against a rise in interest rates without the customer fully grasping the downside risks. Serious Fraud Office investigators are in talks with the regulator over the scandal.