The Governor of the Bank of England, Sir Mervyn King, has called for Libor to be replaced as he believes it is no longer fit for purpose.
The London Interbank Offered Rate, or Libor as it is known, is the interest rate at which banks borrow funds from each other and is fixed on a daily basis.
According to Sir Mervyn, however, many banks have ceased using Libor.
"What's become apparent is there is no such thing as the interbank borrowing rate," he said. "The dominant feature in setting interbank borrowing rates is now the credit risk associated with the potential failure of a bank, and that varies from bank to bank. So the idea of having a panel to sort out the interbank rate no longer makes sense."
Sir Meryvn's statement comes just weeks after the alleged fixing of Libor rates by high profile banks, which saw Barclays fined £290 million by US and UK regulators.
The Government is reviewing the rate setting procedure. It is hoped an alternative to the current process will be agreed with the introduction of a new transparent benchmark rate.
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