After resigning as chief executive, Mr Diamond told MPs yesterday he was "sorry" and "angry" over the rigging by Barclays of the Libor rate that decides how much people pay for mortgages and loans.
He described feeling "physically ill" when he had first read of what traders at his bank had done.
But Mr Diamond said he had only discovered the full scale of the problem at Barclays in recent weeks, as the House of Commons Treasury Committee investigating the scandal grilled him for three hours yesterday.
His apology came as Chancellor George Osborne dramatically stepped up his attack on the last Labour Government, saying that Gordon Brown's inner circle at No 10 was "clearly involved" in the affair.
He said: "They were clearly involved and we just haven't heard the full facts ... of who knew what, when."
Prime Minister David Cameron also increased pressure on Mr Diamond to forgo a lucrative severance package, which experts warn could be worth up to £30 million.
The Conservative leader denounced large payments to executives departing scandal-hit banks as "completely wrong".
But Mr Diamond appeared to reject calls to give up the payoff, telling MPs on the committee that the payout was a decision for the Barclays board.
It followed Tuesday's release by Barclays of a memo that appeared to implicate the Bank of England in rate rigging.
Mr Diamond could not shed any light on the identity of "senior Whitehall figures" in Government said to have been concerned rates were too high. He said he did not believe he had been "instructed" to lower the rate.
But he admitted that a miscommunication meant that another senior executive at the bank did think Barclays had been told to do so.
Mr Diamond said at the height of the banking crisis in 2008 he feared Barclays could be nationalised by
ministers concerned about its high rates.
"They might think 'my goodness, they [Barclays] cannot fund, we might have to nationalise them'," he said.
In the memo, Mr Diamond described a conversation with the Bank's deputy governor, Paul Tucker, about the Libor interbank lending rate.
In it, he said Mr Tucker had told him that Barclays' reported rate did not "need" to be as high as it had been.
Mr Diamond admitted that within two days his bank's rate had fallen.
But he insisted that was a result of rates falling across the board in reaction to good news in the markets.
He said he believed Mr Tucker had been trying to warn him that "there are ministers in Whitehall who are hearing that Barclays is always high".
But he added: "My recollection is Paul did not mention who he was referring to or I would have put it in the note."
Mr Tucker said he wanted to give MPs his side of the story "as soon as possible".
Mr Diamond said Barclays had wanted to get to the bottom of the scandal.