Leading article: An inquiry into Libor alone will not suffice

Last week's revelation that Barclays and probably other banks had attempted to rig the Libor inter-bank lending rate brought two immediate consequences. The first was the rekindling of public anger against the banks, just as it had started to subside. The second was the loud scurrying of ministers, regulators and bankers all desperate to limit the damage.

That this will be easier said than done was apparent from all the words expended to minimal effect over the weekend. The Government announced an independent review into the workings of Libor, to report by the autumn. The chairman of the Treasury Select Committee said Bob Diamond, the Barclays chief executive, would be questioned on Wednesday. Vince Cable, the Business Secretary, promised a consultation on criminal sanctions for the directors of failed banks, while the head of the Financial Services Authority said he was talking to the Serious Fraud Office about whether those responsible could be prosecuted.

Meanwhile the Leader of the Opposition, Ed Miliband, called for an inquiry along the lines of the Leveson Inquiry into the press. Amid all this, little more than a footnote was the revelation from the Royal Bank of Scotland – in the dock of public opinion anew since many customers were locked out of their NatWest accounts two weeks ago – that a number of traders had been dismissed late last year over their alleged involvement in fixing Libor rates. Will there, it must be asked, be any more?

For it is the vacuum of authority and paucity of effective sanctions that constitute the most striking aspects of this scandal so far. The public, rightly, wants names to be named and to be confident that punishment awaits. To most ordinary bank customers, it beggars belief that so much damage can be done to the integrity of the British banking system, without anyone – except possibly a few anonymous junior traders – being in the frame.

The scale of the damage is recognised by everyone – from the head of the Bank of England and the Prime Minister to the head of the regulatory authority, to past ministers and bank chiefs . But no one seems able, or willing, actually to do anything that does not require lengthy and possibly abortive consultation.

It is, or should be, clear that an inquiry limited to the workings of Libor, while necessary, will not suffice. The wider context and culture are important, too. This is why, sooner rather than later, the Government may have to grant the Leveson-style inquiry demanded by Mr Miliband, even though it will cost time and money and probably not be enough, by itself, to cure the sickness which, it is now clear, afflicts the heart of banking in this country. And if, as the BBC's business editor reported yesterday, the Bank of England was either aware of, or actually encouraged, the rigging of Libor, then we are into territory of quite a different constitutional order. This scandal has some distance to run.

Even as it stands today, however, the harm done to the reputation of British banking is almost incalculable, not just in the eyes of the British public, but in banking centres around the world, from Frankfurt to New York to Tokyo. This was, after all, the London Inter Bank Offered Rate that was being manipulated. The Prime Minister and others cannot credibly beat the drum for the British financial sector while the stench of corruption hangs in the air. Clear lines of responsibility, contrition and visible penalties are essential if the City of London is once again to be a place where a banker's word is accepted as his bond.