Libor lending rate falls to record low

The cost of three-month dollar loans slid to a new record low today after Bank of America Corp. said it had raised around $13.5 billion to shore up its capital position. Earlier this month, the U.S. regulatory authorities said Bank of America would need an additional $33.9 billion, more than any other bank reviewed, to protect itself against losses should the economy worsen. The bank was seen as making progress in raising new capital. A request by Goldman Sachs, JP Morgan Chase and Morgan Stanley to repay their government bailout money has also been well received by investors. The British Bankers' Association said the rate on three-month loans in dollars — known as the London Interbank Offered Rate, or Libor — fell 0.03 percentage point to 0.72 percent. It has been falling consistently for the past month. Meanwhile, the equivalent rate for three-month loans in euros — known as the European Interbank Offered Rate, or Euribor — rose 0.01 percentage point to 1.25 percent, but the sterling rate dropped 0.01 percentage point to 1.32 percent. Interbank lending rates are important for the wider economy because they determine the cost of loans to households and businesses. They shot higher during the financial crisis but have been edging lower in the wake of huge efforts by governments and central banks to get banks to lend once again. Despite the improvements, interbank lending rates are still relatively high. Before the financial crisis, they were only a few tenths of a percentage above the base rates set by central banks — 0-0.25 percent in the U.S., 1.0 percent in the euro zone and 0.5 percent in Britain.