Mr Bob Diamond has resigned as the Chief Executive of Barclays with immediate effect, after Monday’s resignation by Chairman Mr Marcus Agius failed to lessen the pressure on him over the Libor rate-manipulation scandal.

In a move that caught many off guard, it was announced that Mr Diamond would step down with immediate effect, and that Mr Agius would return as Chairman, and lead the search for a new chief executive.

“The external pressure placed on Barclays has reached a level that risks damaging the franchise – I cannot let that happen,” Mr Diamond said in a statement on Tuesday morning, adding that he was “deeply disappointed by the impression” created by last week’s events. Mr Diamond, who has spent 16 years at Barclays, and a year and a half as its chief executive, headed its investment banking division during the period when the attempted rate manipulation took place.

Barclays last week agreed to pay a total of £290 million (Rs 2,500 crore) to the US Department of Justice, US Commodities Futures Trading Commission and Britain’s Financial Services Authority to settle claims that some of its traders attempted to manipulate the London Interbank Offered Rate (Libor), used as a benchmark globally for short term interest rates.

The settlement reached by Barclays is part of a wider cross-Atlantic investigation of a number of banks – a fact that Barclays had attempted to highlight as it tried to limit the fallout of the scandal. Mr Diamond and three other senior Barclays executives said they would forego their bonuses for 2012, while the bank has pledged to undertake an inquiry.

Mr Diamond has long been a controversial figure at Barclays: admired within investor circles for his transformation of its investment banking division from revenues of some £1 billion in 1998 to over £10 billion, the enormous bonuses he continued to receive throughout the crisis drew much public ire, as did his insistence last year that the time for “remorse and apology” by the banking sector was over.

Last week, the Prime Minister, Mr David Cameron, declined to give Mr Diamond his backing, and said he and the management team had “very serious questions to answer.” Opposition leader Mr Ed Miliband was even stronger in his condemnation, calling for Mr Diamond to step down.

In addition to the bank’s own internal inquiry, the Government has now pledged a parliamentary inquiry into the scandal, while the Serious Fraud Office said it would announce within a month whether it would be able to bring any criminal charges against any of the banks involved in the investigation. The FSA had indicated that under the law as it stood, Libor didn’t count as a financial instrument over which it could bring criminal charges.

The big question will be who takes over Mr Diamond’s role. The bank says it will be looking at both internal and external candidates. Analysts pointed to a number of possibilities, including Mr Antony Jenkins, Barclays’ head of Global Retail and Commercial banking, and Mr Bill Winters, the former co-CEO of JP Morgan Investment Banking.

Mr Diamond will remain in the spotlight. On Wednesday, he will appear before the House of Commons Treasury Select Committee to answer questions about the bank’s role in the rates-setting scandal.

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