Paul Tucker spoke to Bob Diamond about the Libor rate back in 2008

Paul Tucker, the deputy governor of the Bank of England, is to appear before the Treasury Committee later to be questioned about a key conversation he had with the former boss of Barclays.

It comes as the committee continues to investigate the attempt by Barclays traders to fix a key bank lending rate.

Former Barclays chief executive, Bob Diamond, who has resigned over the scandal, has said he spoke to Mr Tucker about the Libor rate back in 2008.

He said he was given no instructions.

In notes released by Barclays last week, Mr Tucker said that in a phone conversation in October 2008, Mr Tucker had told him that "senior figures within Whitehall" were concerned that Barclays was setting its Libor rate higher than some of the other main banks.

However, Mr Diamond subsequently said before the Treasury Committee that he did not consider that Mr Tucker was asking him to lower Libor.

Mr Diamond said: "I didn't believe it was an instruction."

The committee's chairman, Conservative MP Andrew Tyrie, then replied that to "almost anyone who looks at it", it appeared that Mr Diamond was being given "a nod and a wink".

Yet while Mr Diamond said he did not consider it to be an instruction, Barclays' Libor rates did subsequently fall.

Mr Diamond said this was because when the message was passed down to the bank's then-chief operating officer Jerry del Missier, he mistakenly concluded that an instruction had been given by the Bank of England not to keep Libor rates so high.

On Sunday, Business Secretary Vince Cable told the BBC's Andrew Marr Show that Barclays should limit the pay-off that Mr Diamond receives.

Mr Cable said: "I think in view of what's happened, I would sincerely hope that the board of Barclays take a fairly strict view about this.

"There isn't anything government can directly do about it, but I think in view of the shame that has already been heaped on Barclays bank, I would be very surprised if the chairman and the board were to allow another outrage to occur."

Mr Cable also accused the UK's banks in general of "throttling" the UK's economic recovery, by failing to lend to small firms.

He said this was the "real problem" and that the government had to "focus single mindedly" on solving it.

The Libor scandal broke on 27 June, when it was announced that Barclays had agreed to pay a total £290m in penalties to UK and US regulators, after it admitted that some of its traders had tried to rig the Libor rate, sometimes working with staff at other financial institutions.

Barclays chairman Marcus Agius subsequently resigned on 2 July, with Mr Diamond and Mr del Missier following suit a day later.

On Friday of last week, the Serious Fraud Office confirmed that it had formally launched an investigation into the rigging of inter-bank lending rates.

Libor measures the average rate that banks have to pay to borrow from their rivals for a specific period of time - be it a few weeks, months or up to a year.

It is calculated on a daily basis by the British Bankers' Association from estimates submitted by the major international banks based in London of the interest rate they must pay in order to borrow cash from other banks.

The rate each bank has to pay is in part a reflection of their rivals' perception of its financial strength, effectively how much it is trusted.

Every day 16 banks submit the interest rate that they are charged to borrow money.

The four highest rates and the four lowest rates are ignored. The average of the eight remaining rates makes up the Libor rate.

A bank has to pay a higher interest rate to borrow funds if other lending banks have less confidence in it.

This means that the Libor rate gives an indication of the health of the wider banking sector.