Diamond hit back, calling the comments made by a parliamentary committee "unfair and unfounded".

The affair became a major political issue in Britain this month, after authorities fined Barclays more than $450 million for its part in manipulating a crucial interbank interest rate. Diamond resigned on July 3.

Marcus Agius, the chairman of Barclays when its traders fiddled the rate, appeared before a hostile parliamentary panel as part of its investigation into the row which as caused widespread public anger in Britain.

In 2-1/2 hours of gripping testimony, he acknowledged the central bank chief had played a key role in pushing Diamond out of his job, and described the personal drama behind the scandal.

"I'm not happy to be where I am, as you can imagine," Agius told the panel in a quiet, clipped voice. "It's very difficult as you go back to say what you would have done differently."

Agius was the first Barclays executive to quit when the scandal erupted but that was not enough to protect the hard-charging Diamond, who was forced out of the 300-year-old bank a day later.

Agius, a Cambridge and Harvard educated pillar of the banking establishment, has agreed to stay on as executive chairman to find a successor to Diamond, who testified in parliament last week.

The panel pressed Agius repeatedly on what it saw as inconsistencies between Diamond's evidence last week and the contents of a letter from the financial watchdog to the bank, which was released at the start of Tuesday's hearing.

"LACK OF CANDOUR"

"It will look to us, and frankly it will look to everybody listening, like another example of a complete lack of candor to parliament by the chief executive of Barclays," said committee chairman Andrew Tyrie.

In a tense exchange, John Mann, a lawmaker from the opposition Labour party, said: "He has calculatedly and deliberately misled this parliamentary committee ... Mr. Diamond has been misleading this committee, hasn't he?"

Agius replied: "I can't speak for his testimony."

Diamond, in a letter to Tyrie, later said the accusations were unjustified: "Having watched the committee's session today, I was dismayed that you and some of your fellow committee members appear to have suggested that I was less than candid with the committee last week," he wrote in the letter, which was published by the BBC.

"The comments made at today's hearing have had a terribly unfair impact on my reputation, which is of paramount concern to me."

Neither Diamond nor Agius stand accused of individual wrongdoing in the manipulation of rates.

As lawmakers piled criticism on him, Agius looked tense at times, blowing out his cheeks and shaking his head in disbelief. He interrupted one committee member sharply at one point to correct the pronunciation of his surname.

Shedding light on what went on behind the scenes, Agius said Diamond resigned after the central bank chief summoned Barclays executives and made it clear that their colleague had to go.

"We explained what had happened," said Agius, who visited Diamond at his house in London. "He was utterly depressed as you can imagine. The conversation was not long.

"He asked for time to talk to his family, and we left confident that if he hadn't already made the decision, that he would make the right decision."

BONUSES LOST

Diamond's pay-off has been the subject of intense speculation in a country where anger with the culture of bankers strikes a popular chord. One of the world's richest bankers, Diamond took home 17 million pounds last year alone and has earned at least 120 million pounds since he joined the board in 2005, according to Manifest, a corporate governance group.

In a separate statement, Barclays quoted Diamond as saying he hoped his decision would help the bank move on.

"The wrongful actions of a relative few should not detract from the outstanding work that Barclays employees carry out each day on behalf of clients and customers around the world," the American banker said.

Diamond will still get a year's pay and a cash payment instead of a pension, all worth 2 million pounds, Agius said.

Letters released on Tuesday showed the Financial Services Authority - Britain's financial watchdog - had long shared its concerns with Agius about his bank's behavior and culture.

"The cumulative effect ... has been to leave us with an impression that Barclays has a tendency continually to seek advantage from complex structures or favorable regulatory interpretations," said an April 10 letter sent by FSA Chairman Adair Turner to Agius.

Turner said the concerns had also been raised by Andrew Bailey, the head of banking supervision at the FSA, while attending a Barclays' board meeting in February.

In his testimony last week Diamond said: "I don't remember anything ... I didn't brief before this on the February meeting."

FIRM TONE

When asked about the letter, Agius said: "I don't regard this as damning. I regard this as a firm letter from our regulator." He added however he had never received a letter that harsh from a regulator and described his relationship with the Financial Services Authority as "strained".

More than a dozen other banks are now expected to be drawn into the scandal. The London Interbank Offered Rate underpins transactions worth hundreds of trillions of dollars worldwide.

Mervyn King, the Bank of England governor, has declined to comment on his involvement in Diamond's resignation but he told the BBC in an interview recorded before Agius' testimony that it was time to change the way Britain's banking system worked.

"We don't have enough banks, and those banks that we have, have become too big and they dominate the sector in a way that's rather undesirable," he said.

Libor, or the London interbank offered rate, is compiled from estimates by large international banks of how much they believe they have to pay to borrow from each other. It is used for $550 trillion of interest rate derivatives contracts and influences rates on mortgages, student loans and credit cards.

The rates submitted by banks are compiled by Thomson Reuters, parent company of Reuters, on behalf of the British Bankers' Association.

(Reporting by Matt Scuffham, Douwe Miedema; Steve Slater, David Milliken, Sven Egenter, Venetia Rainey, Paul Sandle, Sophie Kirby, Helen Massy-Beresford; Writing by Maria Golovnina; Editing by Giles Elgood and Alastair Macdonald)

• A Permanent Economic Emergency