An urgent independent review into the inter-bank lending rate is to be set up by the Government next week in the wake of the interest rigging scandal.
The review will consider the future operation of the Libor rate and the possibility of introducing criminal sanctions, a Treasury source said.
Bob Diamond, the chief executive of Barclays - the first bank to be exposed in the scandal - has been summoned to appear before the Treasury Select Committee next Wednesday.
The review comes amid Labour demands for a full public inquiry into the affair.
The Government believes its approach will ensure a speedier response to the issue, resulting in amendments to the Financial Services Bill this summer.
The review will be headed by an as-yet-undisclosed independent figure.
It will look into the current regulatory arrangements for the Libor and whether criminal sanctions for manipulation can be introduced.
Ministers are considering setting up a separate review into the professional standards of bankers.
MPs on the Treasury Select Committee will grill Diamond over who at Barclays knew about the Libor "scam" and how the issue had been dealt with.
The committee has also asked the bank's chairman Marcus Agius and other non-executives to appear on Wednesday.
Committee chairman Andrew Tyrie, a Conservative MP, said: "The Libor interest rate benchmark - crucial to transactions right across the economy and affecting millions of people - was systematically rigged over a period of years.
"It appears that many banks were involved and Barclays were the first to own up. This is the most damaging scam I can recall.
"The reputation of Britain's financial services industry has been severely tarnished, albeit unfairly for the overwhelming majority unconnected with the scam.
"The public's trust in banks has been even further eroded. Restoring the reputational damage must begin immediately.
"Parliament and the public need to know what went wrong and whether the perpetrators have been rooted out.
"We also need to be given confidence that this has been put right."
On Saturday, Justice Secretary Ken Clarke called for a criminal investigation into the latest banking scandal, while Labour leader Ed Miliband accused the Government of adopting "sticking-plaster solutions" and criticised the Prime Minister as being "out of touch".
Ed Miliband delivers his speech to Fabian conference at Millbank Tower, London
"I have news for David Cameron: the people of this country want a moment of reckoning for our banks," he told a Fabian Society conference in London.
"The British people will not tolerate the establishment closing ranks saying we don't need an inquiry.
"They want a light shone into every dark corner of our banking system. They want bankers held to account. They want the system rebuilt.
"Nothing less than a full public inquiry can do that. Sticking-plaster solutions will not heal this wound.
"Nobody has confidence that the current plans of this Government or the industry will be sufficient. Nobody believes either that the scandals of the last week are the end of the story.
"So we need a full, open and independent inquiry which the public can trust."
David Cameron responded on Saturday, telling TV reporters: "It's very important, above all, that government takes all of the actions necessary, holding bankers accountable, making sure they pay their taxes, making sure there's proper transparency, making sure the criminal law can go wherever it needs to, to uncover wrongdoing, all of these things need to happen."
As to calls for an inquiry, he said: "Let's take our time, think this through carefully... That's what I'm determined to do, and that's what we will do."
Shadow chancellor Ed Balls said the Government's review was not enough.
"This limited review is welcome and overdue, but it does not go far enough. We need the proper independent and public inquiry into the culture of banking that Ed Miliband and I have demanded.
"The Libor arrangements in place now date back to the 1980s. They are a clear example of failed self-regulation. But the Government has been dragging its feet on reform in this area.
"Even when this scandal was starting to emerge in March this year, when we raised this issue as the Financial Services Bill was being debated, why did Treasury ministers complacently refuse to even consider change? Why has the Chancellor been so reluctant to act?"
A Treasury source said: "No one would be happier than the Government to see Ed Balls in the witness stand, but the urgent priority for the country is clearing up the mess people like he made."
Financial Secretary to the Treasury Mark Hoban said the review would ensure there would be no repeat of the scandal.
"One of the things with this Libor scandal is that because of the regulatory regime the previous government designed there wasn't an offence around fixing the rate of Libor," he told Sky News.
"We are going to rectify that. That's why we are launching an independent review next week."
READ MORE:
- Ken Clarke, Justice Secretary, Calls For Criminal Investigations Into Banking Scandals
- Libor, The Latest Odd Financial Term We've All Had To Learn
- FSA Finds 'Serious Failings', Banks Agree To Compensate Customers
- Serious Fraud Office May Investigate Barclays Scandal
- Barclays Has 'Serious Questions To Answer', Says David Cameron
- Could More Banks Be Caught Up In The Lending Rates Scandal?
- Barclays Lending Rate Scandal: Emails Reveal Suspicious Behaviour Of Staff