Under intense pressure from Labour, Prime Minister David Cameron made the move amid growing demands for a public inquiry into the loss of trust in the banking industry.
The proposed inquiry, including peers and MPs, will be chaired by Andrew Tyrie, the Conservative chairman of the Treasury Select Committee.
It will look into what lessons can be learned in relation to “transparency, conflicts of interest, culture and the professional standards of the banking industry”.
It is due to report by the end of December and will be provided with extra research resources by the Treasury.
Chancellor George Osborne told MPs: “We need to get on with this – not spend years on costly navel-gazing when we know what has gone wrong.”
The government hopes a speedy inquiry will mean recommendations could be drawn up in time for inclusion in a banking bill next spring.
