King attacks banks amid new scandal
Sir Mervyn said there was no need for a Leveson-style inquiry, but admitted "something went very wrong with the UK banking industry and we need to put it right".
Taxpayer-backed Royal Bank of Scotland also confirmed it was being investigated for manipulating the rates at which banks lend to each other, known as Libor.
Sir Mervyn said: "From excessive levels of compensation, to shoddy treatment of customers, to a deceitful manipulation of one of the most important interest rates and now news of yet another mis-selling scandal we can see we need a real change in the culture of the industry."
He added that hard-working bank staff have been "let down" and that banks now needed "leadership of an unusually high order".
The Financial Services Authority (FSA) revealed earlier that Barclays, HSBC, Royal Bank of Scotland and Lloyds Banking Group had agreed to pay compensation to customers who were mis-sold interest-rate hedging products.
Some 28,000 of the products have been sold since 2001 and may have been offered as protection - or to act as a hedge - against a rise in interest rates without the customer fully grasping the downside risks.
Martin Wheatley, managing director of the FSA's conduct business unit, said: "For many small businesses this has been a difficult and distressing experience with many people's livelihoods affected."
The findings come after Barclays was fined £290 million by UK and US regulators for manipulating the rate at which banks lend to each other, and echoes the costly payment protection insurance (PPI) mis-selling scandal that emerged last year.
- BoE warns borrowing to become more expensive
- BoE makes fresh push to kickstart lending
- Barclays boss Bob Diamond urged to quit