Only Finance.com - Changes in banking lending rate

Loans - Changes in banking lending rate - 12/06/2008

According to the British Bankers Association (BBA) the people who process the interest rate at which banks lend money to each other is to be reinforced. The BBA has announced a range of changes which will affect the London Inter Bank offered rate, also known as LIBOR from the 10th June.

There will also be more contributors who will be involved with the rate setting. This is important because it will reflect how banks perceive borrowing risks. While the central banks will set a official rate the London Inter Bank offered rate will be used to show the real rate of interest that is being used by the large global firms to borrow from each other. It has also been used a barometer of the credit crunch.

Mortgage lenders in the UK look to rises in LIBOR when increasing the costs of new deals, despite there being falls in the Bank of England's base rate.

The new changes are supposed to strengthen LIBOR and the confidence of its users. According to the BBA they hope that: "These changes will further strengthen BBA Libor and the confidence of its many users."

The BBA also said that it would also extend the membership the Foreign Exchange and the Money Markets Committee to oversee the LIBOR process. They also said that would tighten the scrutiny of the rates contributed by banks to justify any possible discrepancies.

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