Government to commission independent review of interbank lending rates

The short inquiry, which will begin this week according to the BBC, will enable amendments to be made to the Financial Services Bill if necessary. The Bill, which is currently going through Parliament, will overhaul the system of financial services regulation in the UK.

However, Labour leader Ed Milliband said that the Government needed to do more. Prime Minister David Cameron has said that the Government needs time to "consider the issues very carefully" before ordering a full public inquiry.

"The British people will not tolerate anything less than a full, open and independent inquiry, they will not tolerate the establishment closing ranks and saying we don't need an inquiry," Milliband told the Fabian Society in a speech on Saturday. "They want people held to account, they do not want sticking plaster solutions and I'm afraid at the moment that is all the Government is offering."

The British Bankers' Association (BBA), which sponsors the daily London Interbank Offered Rate (LIBOR), is currently undertaking a review of the way in which the rate is set in consultation with the Bank of England, regulators and the Treasury.

LIBOR is a daily reference rate based on the interest rates at which banks can borrow unsecured funds from other banks. It is widely used as the basis for financial instruments including interest rate and currency hedging instruments and to set the interest rate for syndicated loans. Contributing banks submit their rates directly to business data provider Thomson Reuters, which carries out the calculation and publishes LIBOR rates in 10 currencies at midday every London business day.

Last week Barclays Bank announced that it had entered into settlement agreements with UK and US regulators for "misconduct" in relation to its contributions to LIBOR and its euro equivalent, EURIBOR. The bank has agreed to pay total penalties worth £290 million to the Financial Services Authority (FSA), US Commodity Futures Trading Commission (CFTC) and the Fraud Section of the US Department of Justice (DoJ).

Meanwhile the cross-party Treasury Select Committee will interview senior executives at Barclays about the penalties issued against the bank by financial regulators in the UK and US last week. The bank's chief executive, Bob Diamond, is to appear before the Committee on Wednesday while non-executives including former chairman Marcus Agius, who resigned on Monday, will be interviewed on Thursday.

Andrew Tyrie, chairman of the Committee, described the LIBOR case as "the most damaging scam I can recall".

"The reputation of Britain's financial services industry has been severely tarnished, albeit unfairly for the overwhelming majority unconnected with the scam," he said. "Parliament and the public need to know what went wrong and whether the perpetrators have been rooted out. We also need to be given confidence that this has been put right."