The American, who had worked for the bank for 16 years, finally buckled under pressure amid mounting calls from politicians, shareholders and regulatory bodies for him to step down. 

Diamond said: “My motivation has always been to do what I believed to be in the best interests of Barclays. No decision over that period was as hard as the one that I make now to stand down as Chief Executive. The external pressure has reached a level that risks damaging the franchise – I cannot let that happen.
I am deeply disappointed that the impression created by the events of last week about what Barclays and its people stand for could not be further from the truth.”

The Chancellor, George Osborne, is said to have welcomed this move as the “first step toward” to changing the culture of banking and a “new age of responsibility that we need to see”.

Diamond, who was once dubbed the “unacceptable face of banking” by Lord Mandelson, was in charge of the bank’s investment arm, Barclays Capital, when staff attempted to influence the key interbank lending rate.

The government has this week launched an all-party inquiry into the banking industry amidst the outcry over the rigging of Libor. The country’s most senior bankers, including Diamond, will be forced to testify under oath as part of a wide-ranging investigation into the industry, in a bid to restore public trust in the country’s major lenders.

Barclays has been at the centre of a gathering storm over banking ethics after it was fined £290 million last week by UK and US regulators for manipulating the Libor, the rate at which banks lend to each other. Chairman Marcus Agius, who resigned over the affair on Monday, will remain with the bank to lead the search for a new chief executive before stepping down at a later date.

Agius commented, “Bob Diamond has made an enormous contribution to Barclays over the last 16 years of distinguished service to the Group, building Barclays Investment Bank into one of the leading global investment banks in the world.”

“As Chief Executive he has led the bank superbly. I look forward to working closely with the Chief Executives of our businesses and the other members of the executive Committee in leading Barclays world class businesses in serving our customers and clients and delivering value for our shareholders.”

The search for a new Chief Executive will start immediately.