A surprise hike in a widely used interest rate is expected to soon send many US borrowers reeling, the Wall Street Journal warns. The London interbank offered rate, a yardstick for financial instruments including resettable mortgages, jumped sharply yesterday. The increase, a signal that banks are becoming more cautious about lending, could affect $9 trillion in debt.
The spike came as the British Bankers Association launched a review of the accuracy of information used to calculate the rate. The interbank level reflects the rate at which banks lend to each other—but there are concerns some banks have been understating their costs to paint a brighter picture of their financial situation. Analysts say if the rate is found to be inaccurate, the financial world could be shaken to its very foundations.