The move comes less than a week after the bank was fined a record amount for trying to manipulate inter-bank lending rates.

Mr Diamond said he was stepping down because the external pressure on the bank risked damaging the franchise.

Chancellor George Osborne welcomed the decision and hoped it was the first step towards a new culture of responsibility in British banking.

Chairman Marcus Agius, who had announced his own resignation on Monday, will now take over the running of Barclays until a replacement is found.