Britain's banks need a "real change in culture" following a series of scandals that have rocked the industry, Bank of England governor Sir Mervyn King said today.
Sir Mervyn's comments came as Britain's biggest lenders were embroiled in fresh controversy over rigging key interest rates, as well as further evidence of mis-selling.
The governor ruled out a Leveson-style inquiry but hit out at the banks for "excessive levels of compensation, shoddy treatment of customers and a deceitful manipulation of one of the most important rates".
The Financial Services Authority (FSA) revealed earlier that Barclays, HSBC, Royal Bank of Scotland and Lloyds Banking Group had agreed to pay compensation to customers who were mis-sold complex financial products, called interest rate swaps.
The findings come after Barclays was fined £290 million by UK and US regulators for manipulating the rate at which banks lend to each other.
Discussing the deepening banking culture crisis, Sir Mervyn said: "There must be many people who work in the banking industry who know they are honest, hard-working and feel they have been let down by their colleagues and indeed their leaders.
"Everyone understands that something went very wrong with the UK banking industry and we need to put it right."
The latest scandal to stain the already tarnished record of the banking industry saw lenders pushing interest rate swaps on businesses that did not fully grasp the downside risks.
Martin Wheatley, managing director of the FSA's conduct business unit, said: "For many small businesses this has been a difficult and distressing experience with many people's livelihoods affected."
Swaps are complicated derivatives products that may have been sold as protection - or to act as a hedge - against a rise in interest rates without the customer fully grasping the downside risks.
Banks sold around 28,000 interest rate protection products to customers since 2001, the FSA added.
The affair echoes the payment protection insurance (PPI) mis-selling scandal that emerged last year, costing banks billions of pounds.
Meanwhile, banks are facing the threat of a criminal investigation over fixing the interbank lending figures that affect millions of homeowners and small firms.
The Treasury has started to look at strengthening criminal sanctions for those responsible for market abuse after the FSA exposed the dealings at Barclays on Wednesday.
Serious Fraud Office investigators are in talks with the FSA over the scandal while pressure is mounting on Barclays chief executive Bob Diamond to stand down.
Prime Minister David Cameron said it was very important that accountability for what went on "goes all the way to the top of that organisation" and that Mr Diamond had "some serious questions to answer".
In a further blow, the Financial Times called directly on the senior banker, who it said was behind the bank's "hard-driving culture", to step down.
However, Mr Diamond, who was head of the bank's investment arm at the time of the allegations, showed no signs of quitting after agreeing to appear in front of the Treasury Select Committee to account for his bank's actions.
HSBC and taxpayer-backed Royal Bank of Scotland are among several other lenders being investigated by the City watchdog for trying to influence the Libor - London interbank offered rate - and Euribor interbank lending rates to boost their profits.
TUC General Secretary Brendan Barber said Britain's banking system is "out of control".
He said: "We are now paying a heavy price for the decades when banks and finance persuaded politicians that they were the new engines of growth."
He added: "It's time for a fresh start for our finance sector that makes banking a utility that serves the rest of the economy, and ensures bank cheats face prison."
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