Former Barclays PLC (London: BARC) boss Bob Diamond, testifying Wednesday before the British Parliament's Treasury Select Committee, denied that Bank of England Deputy Gov. Paul Tucker or anyone else in the government instructed the bank to manipulate the benchmark Libor rate that determines the cost of trillions of dollars worth of loans and derivatives traded worldwide every day. 

Diamond, 60, explained an Oct. 29, 2008, memo where he refers to a conversation he had with Tucker over the bank's high Libor submissions, which were being used to determine which banks were most likely to require government intervention to keep afloat. Higher Libor submissions suggest banks are having more trouble than others borrowing money.

This concern over government scrutiny of Barclays' financial situation was happening, said Diamond, at a sensitive moment when Barclays was negotiating a multi-billion-pound cash injection from unnamed Middle Eastern investors.

If [the British government] was told 'Barclays is at the highest of Libor', they might say to themselves, 'My goodness, they can't fund, we need to nationalize them,' as they had nationalized other British banks, said Diamond. We were desperate. We had £6.7 billion of equity being raised. If rumors got on the market that we couldn't fund, then maybe we wouldn't have been able to complete the equity raising.

The bank has admitted it submitted understated Libor-rate submissions in 2008 at a time when other banks that were worse off were posting lower borrowing rates. Two of those struggling banks, Lloyds Banking Group PLC (London: LLOY) and Royal Bank of Scotland PLC (NYSE: RBS),, were partially nationalized.

In his testimony, the former Barclays boss, who stepped down on Tuesday in the wake of the scandal, said he was worried the government would intervene if Barclays continued to post Libor rates on the higher end of the interbank lending spectrum. But he stopped short of taking the blame, instead pointing his finger at 14 high-ranking traders and saying they acted alone.

Last week Barclays paid about $453 million in penalties to U.S. and U.K. regulators for the interest-rate fixing.

The four-year-old investigation into Libor-rate fixing doesn't involve only Barclays, as Diamond pointed out in his testimony. In fact, he defended his bank by saying it has been the first to step forward.

Deutsche Bank (NYSE: DB), Credit Suisse (NYSE: CS), JPMorgan Chase (NYSE: JPM) and Bank of America (NYSE: BAC) are among the banks that have acknowledged that they are being investigated by regulators or, in the case of Bank of America, are reported to be under investigation.

The Libor rate affects nearly every form of borrowing, affecting how much consumers pay for adjustable rate mortgages and student loans.