Ministers are set to strengthen sanctions against those responsible for the Barclays Libor scandal.
Demands for criminal prosecutions follow Barclays' £290 million fine for attempting to manipulate the interbank lending rate Libor, which is used to price over £200 trillion worth of financial products around the world.
Westminster's moves for swift vengeance against the bankers responsible appear to have been frustrated by uncertainty about the legal position, however.
Chancellor George Osborne told MPs that the Financial Services Authority (FSA) was not empowered to impose criminal sanctions for manipulation of Libor.
He said the Treasury was examining whether the criminal sanctions regime for Libor needed to be boosted, stating: "If so we will provide for these powers quickly."
Chief executive Bob Diamond, who faces intense pressure to resign, is being summoned to give evidence before the Commons' Treasury select committee on the matter.
Committee chair Andrew Tyrie called for the financial services bill to be amended to introduce sanctions for Libor and derivatives.
Osborne said the government was looking at strengthening the criminal sanctions regime in general for market abuse.
Next week the Treasury will publish a consultation on proposals to introduce sanctions for the directors of failed banks.
Delivering a statement to MPs, the chancellor attacked the tripartite regulatory system set up by New Labour for failing to detect the wrongdoing at Barclays and other banks in 2005, 2006 and 2007.
"It's already clear the FSA's investigation demonstrates systemic failures at the heart of the financial system at the time," he said.
"No one in the tripartite system knew anything about it. The government of the day was literally clueless about what's going on."
His predecessor in No 11, New Labour chancellor Alistair Darling, said that Osborne would reflect "in his quieter moments" that wrongdoing was taking place across the world, rather than just in Britain.
Yesterday the Financial Services Authority (FSA) fined Barclays £59.5 million for making submissions to Libor which took into account requests from Barclays' interest rate derivative traders.
An additional $160 million penalty agreed with the US justice department also comes on top of a further $200 million fine from the US' commodities futures trading commission.
The FSA's investigation into the Libor scandal is expected to establish that the Libor scandal extends well beyond Barclays.
Osborne added: "What happened in Barclays and potentially other banks was completely unacceptable, was systematic of a financial system that elevated greed over all other concerns and brought our economy to its knees."
Prime minister David Cameron said he believes the management at Barclays has "some serious questions answer" over the Libor scandal - including who was responsible, who will take responsibility and how are they being held accountable.
London mayor Boris Johnson said he wanted "the whole thing to be fully investigated", before launching into an attack on the City of London he has defended so many times.
"It's not for me to say who is culpable in this, but plainly banks have been forthcoming in getting their dirty linen out there," Johnson said.
"I think the whole banking industry now needs to come clean about what has been going on."
Labour has demanded to know what the Treasury would do to prevent further manipulations of Libor by traders, warning that mortgage repayments of households across Britain depend on a fair and true interest rate market mechanism.
"We now need to know how many employees were complicit in this process, how many will be losing their jobs as a result, and whether this needs to now go beyond the regulators and into a criminal investigation," shadow financial secretary to the Treasury Chris Leslie said.
"And the FSA must urgently look into whether other banks or financial institutions have and are still able to distort the interest rate in this way."
Barclays figures including Diamond are likely to face scrutiny in parliament before the Treasury select committee.
Tyrie, the committee's chair, said: "This was a serious breach. I am very concerned about it. The price-setting mechanism of Libor is crucial to the integrity of the markets. This appears to have been put at risk. From the information I have, it looks inexcusable."
Former chief executive Martin Taylor told the Today programme he thought it was "highly unlikely" that Diamond was directly responsible for the wrongdoing.
But he suggested that "systematic dishonesty" at the bank might have been the result of an aggressive culture at the bank.
"If you go in for a policy of systematic dishonesty then you have some serious rebuilding to do," he added.