BBA completes Libor review

by Gill Montia

Story link: BBA completes Libor review

The British Bankers’ Association (BBA) is introducing some changes to the way in which the London Interbank Offered Rate (Libor) is set.

Since the onset of the credit crisis Libor, which defines the rates at which banks lend to one another, has remained high despite cuts in the Bank of England’s base rate.

Some economists have been questioning the validity of the information supplied by the banks to the BBA, for rate setting purposes.

Following a review of the methods by which Libor is set, the BBA has undertaken to examine more closely the rates contributed by banks into the setting mechanism and to invite wider membership of the Foreign Exchange and Money Markets Committee, which oversees the rate setting process.

The BBA will also increase the numbers of contributors to some of the rate-setting panels.

Libor was developed in the 1980s in response to calls for an accurate measure of the rates at which banks are prepared to lend money to each other.

Its relevance in financial markets then increased alongside London’s status as a global financial centre.