"There's something very wrong with the UK banking industry and we need to put it right," King said at a press conference on Friday to mark the publication of Threadneedle Street's Financial Stability Report.
Asked twice whether Diamond was "fit and proper" to run Barclays in the wake of revelations that the bank manipulated interest rates used as the benchmark for borrowing costs for UK households and businesses, both King and Lord Turner, chairman of the Financial Services Authority, declined to answer.
King made his unhappiness with the City clear but said there was no need for a Leveson-style inquiry into banks. "It is time to do something about the banking system", the governor said. "Many people in the banking industry are hard-working and feel badly let down by some of their colleagues and leaders.
"It goes to the culture and the structure of banks – the excessive compensation, the shoddy treatment of customers, the deceitful manipulation of a key interest rate, and today news of yet another mis-selling scandal."
Barclays was on Wednesday fined a record £290m for attempting to manipulate crucial interest rates known as the London interbank offered rate (Libor) and the Euro interbank offered rate (Euribor) between 2005 and 2009. On Friday the bank was among four banks implicated in interest swap misselling to small businesses.
King added that the question of who ran the UK banks was a question for another day, insisting that the immediate priority was for the government to implement in full the recommendations of the Independent Commission on Banking headed by Sir John Vickers, which called for firewalls to be set up between the investment and retail arms of banks. The governor said the cultures of investment and retail banking were completely different and needed to be separated.
Turner said that there was a "culture of cynicism and greed that is quite shocking." Although the FSA chairman refused to call for heads to roll at Barclays, he said of the City: "There are some very wide cultural issues that need to be addressed."
Andrew Bailey, the top banking regulator at the FSA, said the onus was on bank boards to take action. "If, as we now see, there is a fundamental breakdown in trust, the bank boards have to recognise that trust has to be got back and they have to think very hard about how they do that."
The latest scandals to engulf the banking industry came at a time when the Bank said the outlook for financial stability had deteriorated as a result of the deepening crisis in the eurozone.
King said this had "generated a great deal of uncertainty around the economic outlook and exposed severe vulnerabilities in the European banking system".
The governor said UK banks were being urged to hold more capital than required under new international standards just in case the situation in Europe worsened, and should build up the cushion by limiting dividends to shareholders and compensation to staff.
"It is crucial the banks' efforts to improve resilience should not come at a high cost to the real economy", King said. "Alongside capital-raising, banks can improve their resilience by reducing the riskiness of their balance sheets, and by bolstering investor confidence, for example by seeking to reduce the degree of uncertainty around the possible impact of the euro-area crisis on their balance sheets."
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