The Bank of England Governor says that the culture in the UK banking industry "must change".
Speaking at a press conference, the Bank's Governor Sir Mervyn King said that the UK is a victim of a "vicious circle" of reduced bank lending, and that the culture in banks must change.
He said that implementing Vickers reforms is the most important change needed to improve the UK banking industry, but insisted that banks do not need a "Leveson style" inquiry.
When asked about the recent controversy over the Libor inter bank lending rate, which has seen Barclays receive a £290m fine for rigging the rate, Sir Mervyn King said that manipulating Libor was "deceitful" and that it needed reform.
But he added that financial regulation can't stop bad behaviour in the City.
The Bank of England also said that the UK's financial outlook has worsened due to the eurozone crisis, as the economic problems in the EU are "deep-seated".
Meanwhile, Sky News City editor Mark Kleinman has revealed that Sir David Walker is one of the city grandees who has been approached to look into what went wrong at Barclays.
He also revealed that former government minister and Standard Chartered boss Lord Davies has been touted to be part of the bank inquiry.
Barclays has not yet consented to such an inquiry.
Furthermore, the boss of Barclays has said that he won't resign despite the rate rigging scandal.
Bob Diamond announced his decision whilst speaking at a meeting at US bank Morgan Stanley.
The bank chief also said he "welcomes" the opportunity to give evidence to Parliament in the coming weeks.
Last night, he accepted a summons from the Commons Treasury Select Committee to appear before the influential cross-party panel to answer for the bank's behaviour.
In a letter to the committee's chairman, Tory MP Andrew Tyrie, he accepted that foregoing bonuses, apologising, paying the fines and disciplining individual offenders would not be sufficient to restore the bank's reputation.
Prime Minister David Cameron has 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".
The banking sector's public image also took a further battering, when the Financial Services Authority (FSA) revealed it has found evidence that banks are embroiled in another mis-selling scandal.
A review into the way lenders pushed so-called interest rate swap arrangements (Irsas), which have landed small businesses with spiralling bills, is expected to have uncovered mis-selling.
Chancellor George Osborne told MPs the scandal was "a shocking indictment of the culture of banks like Barclays in the run-up to the financial crisis".