Bank lending rate faces scrutiny

The interest rate at which banks lend money to each other faces greater scrutiny, according to the British Bankers' Association (BBA).

The BBA is due to announce a range of changes to the governance of the rate known as the London Interbank Offered Rate or Libor at its annual conference.

The rate is crucial because it reflects how banks perceive borrowing risks, the association explained.

The changes will "strengthen" Libor and the confidence of its users, it said.

The BBA is planning on a number of changes including "tighter scrutiny of the rates contributed by banks into the setting mechanism, so that any discrepancies in the rates must be justified by individual contributing banks."

Another change is to expand the membership of the independent body which overseas the process.

While central banks set official rates, Libor is seen to show the real rate of interest being used by the largest global firms to borrow from one another.

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