The Treasury select committee report also said former Barclays boss Bob Diamond was “highly selective” in his evidence to its inquiry and had fallen “well short” of the standards expected by MPs.
The report said public trust in banks was at an all-time low and the UK’s reputation had suffered “great damage”.
Chairman Andrew Tyrie said: “The committee has called for action in a number of areas, including higher fines for firms that fail to co-operate with regulators, the need to examine gaps in the criminal law and a much stronger governance framework at the Bank of England.
“Urgent improvements, both to the way banks are run and the way they are regulated, is needed if public and market confidence is to be restored.”
The report called for consideration to be given to amending the financial services law to make the manipulation of Libor – the rate at which banks lend money to one another – a criminal offence.
In the report, the Bank of England was cleared by MPs of directing Barclays to lower Libor artificially, as MPs found the bank was already doing so and it “did not need a nod, a wink or any signal from the Bank of England to lower artificially their Libor submissions”.
However, the Bank of England and the Financial Services Authority (FSA) were criticised for failing to spot the manipulation.
Barclays said it did not expect to agree with every finding in the report, but it recognised change was needed to restore trust.
A spokesman added: “We have established an independent review of our business practices under Anthony Salz, and we expect that review to take full account of this report in producing its recommendations.”
Libor is used to set the interest rate on trillions of pounds worth of contracts around the world, including credit cards and mortgages.
This week, it emerged that Barclays, along with HSBC and Royal Bank of Scotland, is among seven banks that have been handed legal notices demanding they assist in an inquiry by the attorneys general of New York and Connecticut.
Lloyds Banking Group is also understood to be among 14 banks to receive a subpoena from Florida’s attorney general. A spokeswoman said: “The group is assisting various regulators in their ongoing investigations into the setting of the London interbank offered rate.”
Martin Wheatley, who heads conduct regulation for the FSA, is leading a review into the Libor system, which is currently overseen by the British Bankers’ Association (BBA).
Today’s report called on the Wheatley review to consider whether a trade association is the appropriate body to perform that role.
Wheatley’s review – which is due to publish its proposals in September – should also consider making Libor manipulation a criminal offence.
A Treasury spokesman said: “Any necessary legislative changes will be considered for inclusion in the Financial Services Bill or the Banking Reform Bill.”
Today’s report said regulators should slap heftier penalties on companies that did not co-operate with investigations.