Barclays chief executive Bob Diamond resigned with immediate effect today over the interest rate-rigging scandal.
The American, who had worked for Barclays for 16 years, buckled under pressure to step down from politicians, shareholders, financial campaigners and former directors.
Chancellor George Osborne, who yesterday unveiled a parliamentary investigation into banking standards, welcomed the move as the "right decision" for the bank and for the country.
Barclays has been at the centre of a gathering storm over banking ethics after it was fined £290million last weekby UK and US regulators for manipulating the Libor, the rate at which banks lend to each other.
Chairman Marcus Agius, who resigned over the affair yesterday, will stay with the bank to lead the search for a new chief executive before stepping down at a later date.
Mr Diamond, once dubbed the "unacceptable face of banking" by Lord Mandelson, was in charge of the bank's investment arm, Barclays Capital, when staff attempted to influence the key interbank lending rate.
However, the 60-year-old, who confirmed he would still appear before the Treasury Select Committee tomorrow, remained defiant in his resignation statement.
He said: "I am deeply disappointed that the impression created by the events announced last week about what Barclays and its people stand for could not be further from the truth."
He added: "My motivation has always been to do what I believed to be in the best interests of Barclays. No decision over that period was as hard as the one that I make now to stand down as chief executive."
Labour leader Ed Miliband said: "This was necessary and right. It was clear Bob Diamond was not the man to lead the change that Barclays needed.
"But this is about more than one man – this is about the culture and practices of the entire banking system, which is why we need an independent, open, judge-led public inquiry."
Liberal Democrat peer Lord Oakeshott, who led calls for Mr Diamond to resign in the wake of the scandal, said: "Bob Diamond's departure is a great day for democracy.
"He is the symbol of the gambling and greed we must root out of our banking system."
It is not known how much of a pay-off, if any, Mr Diamond will receive.
Barclays said his severance package was "still under discussion".
The bank's most recent remuneration report, for 2011, said executive directors are entitled to a notice period of 12 months and payment in lieu of notice in instalments.
This means Mr Diamond could be entitled to a full year's salary, which in 2011 was worth £1.4m.
However, the report adds that the remuneration committee's approach when considering payments in the event of termination is to take account of the individual circumstances.
These include the reason for termination, contractual obligations and cash, share and long-term incentive plan and pension plan rules.
In addition to his salary, Mr Diamond got an annual bonus of £2.7m, of which he gave up half in an attempt to win round shareholders angered by excessive pay.
He also received £2.3m in long-term awards and a £5.7m tax payment on his behalf when he moved from America to London.
But Labour MP John Mann, a member of the Commons Treasury Committee, said there should be no question of a pay-off for Mr Diamond and called on him to repay the "phenomenal" bonuses he had received over the years.
"At a previous Treasury Committee hearing that I was at, he said that if something major went wrong with the bank he should lose his job and his pension," he said.
"Those are the words of Bob Diamond and I shall certainly ensure they are quoted back to him tomorrow. He can then stick by his words and not accept some huge pay-off, some huge pension.
"This bank was rotten to its core and he was the man in charge.
"He should get no pay-off – in fact, he should be repaying the bonuses that he and his bank fiddled."