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A French branch of Barclays bank is seen on the Avenue de l'Opera in Paris in this May 15, 2012 file photograph.

MAL Langsdon/REUTERS

David Cameron said there were "serious questions" for Barclays' management as cross-party political fury rained down on the bank, which has been hit with a record fine for trying to manipulate a benchmark interest rate.

Calling it a "scandal" and "extremely serious" the prime minister said: "The regulator should use all the powers and means at their disposal to pursue this in the way they feel is appropriate." But when Mr. Cameron was asked if Bob Diamond, chief executive, should resign, he said: "Let them [the management] answer those questions first."

Mr. Cameron stressed that the manipulation of the London interbank offered rate – or Libor – happened during the previous Labour government, and under the rules that it put in place. "We are changing these rules and if there is more we can do to toughen them up, we'll take that action," he said.

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Ed Miliband, Labour leader, said it was time to crack down on "the swaggering culture" of bankers who believed they were above the law. The Barclays bankers responsible for the Libor-fixing scam should be identified and face criminal prosecution, he told members of the Unite union at their conference.

The scandal could become a defining moment in the relationship between banks and politicians. Alistair Darling, chancellor at the time of the financial crash, said it represented a clear breakdown of trust.

Mr. Darling told the Financial Times that the Libor rate was one of the key indicators used by the Treasury to assess the strength of banks at the height of the 2008 crisis but that he now realised the measure was seriously flawed.

"If you can't trust banks on something as basic as this, what confidence can you have in them," he said. "The whole thing stinks. The banking industry needs this news like a hole in the head and they have only themselves to blame – again."

Mr. Darling said there needed to be independent scrutiny of the Libor rate to restore its credibility as an international benchmark and that the FSA must now name those responsible at Barclays for the scandal.

"If the FSA doesn't know, it should find out," he said. "Then they have to form a judgment on whether this is a regulatory offence or something more serious.

"I don't think they can just leave it as a fine: it's neither here nor there for the bank. It's a gesture, although of course there is the question of reputational damage."

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The U.S. Department of Justice and Commodities Futures Trading Commission are already pursuing a criminal investigation into alleged Libor manipulation, examining whether there were violations of its Commodities Exchange Act, breaches of which have previously resulted in prison sentences of as long as 14 years.

The FSA has been assisting the U.S. authorities with their inquiry but does not have an independent criminal investigation. It has the power to criminally prosecute insider trading, which carries a maximum prison sentence of seven years, but neither derivatives nor the Libor-standard setting process are currently covered by the law that defines the FSA's criminal powers.

US and UK authorities fined Barclays a record £290-million ($451-million U.S.) for trying to manipulate Libor over five years and across three continents. Investigations into other banks are continuing.

Mr. Diamond has already said that he and three of his most senior staff would waive any bonus for this year "to reflect our collective responsibility as leaders".

The Treasury select committee has said it plans to haul Mr Diamond, and the leadership of the Financial Services Authority, in front of them to discuss how the violations could have happened.

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