Bob Diamond is angry, apparently, insisting that he has been "hounded out" of his job as chief executive of Barclays in the wake of the Libor-rigging scandal. That he feels this is a measure of how wrong it would have been for him to stay in the job. Mr Diamond has been a shrewd investment banker. But it is now immaterial how good a banker he was – for society has updated its definition of what good banking should be. The world has changed, and responsibility, security and accountability – rather than merely maximising return – is the name of the game. The time for remorse is far from over.

Mr Diamond, apparently oblivious to all that, has come to personify what is wrong with the British banking system. After the 2008 financial crash, the complex instruments with which Mr Diamond made Barclays' billions seem socially useless and financially perilous. And the tax-avoidance schemes that provided a big chunk of Barclays profits look, at a time of austerity, anti-social and immoral. Protecting a bank from market jitters by manipulating Libor is seen as having cheated investors and savers.

The full parliamentary inquiry pledged by David Cameron needs to look well beyond the Libor scandal to the wider standards across the banking sector. Requiring witnesses to give evidence under oath will give it power more akin to that of a US Senate inquiry than that of a British select committee. But a parliamentary inquiry, even beefed-up, is not enough. This model should be the Leveson Inquiry into the press, chaired by a judge not a politician.

To say that is no disrespect to Andrew Tyrie, who chairs the Commons Treasury Committee and has been asked to lead the planned inquiry. Mr Tyrie is an independent and robust figure. But if proceedings are run by politicians – even if they include formidable figures from the House of Lords – such as the former Conservative Chancellor Lord Lawson and the former Labour chair of the Treasury Select Committee Lord McFall – the risk is that it will descend into a party political slanging match. George Osborne gave a hint of politicians' inability to resist point scoring when he said yesterday that "no one more than me" would like to see Ed Balls, now shadow Chancellor, "in the dock".

There is another reason, too, why this inquiry needs to be held outside Parliament. The internal memo released by Barclays yesterday suggests there could be other dimension to the Libor scandal beyond a plot by some traders to make (even) more money. Mr Diamond should shed more light on this when he appears before the Commons committee today, but the memo hints at signals sent from the then government, via the Bank of England, on the matter of interest rates that could be interpreted as compromising the independence of the Bank and the good faith of the Labour government that granted it. If there is a genuine political aspect of this scandal waiting to emerge, it is doubly important that it is a judge, rather than a politician who chairs it, and that it takes place outside the precincts of Parliament.

The Government has argued that a judicial inquiry will take too long and be too expensive. But that need not be the case. Such an inquiry could be given the same tight deadline of reporting before the end of the year so that its recommendations can be included in the Financial Services Bill. If that timetable is deemed to be unrealistic, this is where the compromises should be made. In the end it is better to get the future reforms right than rush to meet some pre-existing timetable.