Banks slash overnight lending rates

Banks dramatically slashed the rates they charge for lending to each other today on relief at the AIG bailout.

Yesterday the overnight rate rocketed to seven-year highs, with dollars only being lent at more than three times the official rate from the Federal Reserve.

The London Interbank Offered Rate, or Libor, for dollars plunged from 6.4375% yesterday to 5.03125%.

But longer term money continued to get dearer for those looking to borrow pounds and dollars, with the cost swelling to its highest in relation to central bank base rates since the start of the credit crunch.