Banking rate reforms announced

The British Banking Association (BBA) is reforming the rate at which banks lend to each other is calculated, after a study claimed the credit crunch highlighted flaws in the system.

The London Interbank Offered Rate (Libor) will be strengthened by reinforcing the scrutiny of its contributor banks and expanding the membership of its governing body and its panels, the BBA said.

The Libor is a borrowing benchmark, used not only by banks in the UK but by lenders all over the world.

A panel of 16 member banks report the current cost of borrowing and the BBA calculates an average interest rate on this basis, which other banks can use as a guide.