A year ago anyone able to define the acronym Libor in a quiz programme would have earned a spontaneous round of applause.

Few outside the Square Mile of the City of London could have told you that it stood for the "London interbank offered rate" or that it was a key measure of the price banks have to pay to borrow from each other.

Now it is a term that is casually tossed about at dinner parties and bus stops because earlier this year Barclays admitted making inaccurate submissions to the body setting the Libor rate, an admission that resulted in the bank receiving a record £290 million fine from US and UK regulators. Barclays was not alone. Seven banks are being investigated and Stephen Hester of largely state-owned Royal Bank of Scotland has admitted that Libor abuse and other sharp practices are going to cost the bank "a lot of money".

Quite right too. Libor matters because it is used to set interest rates on savings, loans and mortgages as well as interbank lending itself. These financial transactions are worth more than $300 trillion (£185tr).

In advance of today's official announcement, the managing director of the Financial Services Authority (FSA), Martin Wheatley, last night revealed that, following his Government-commissioned review, the structure and governance of Libor are to be transformed. The British Bankers' Association (BBA) will be stripped of its responsibility for setting Libor on a daily basis. It has been recognised, alas too late, that it should never have taken on this role, especially as it was not regulated by either the FSA or the Bank of England. And it will no longer be based loosely on the average of what banks expect to pay for their borrowing, regardless of what they actually pay.

This seemingly rather casual arrangement was open to two kinds of abuse. The first enabled banks to conceal rising interbank rates in the run-up to the crash of 2008, a movement that would have indicated the mounting strain on them.

The second scandal is more serious and it stretches at least as far as 2005. It appears that the investment arms of banks were attempting to rig Libor to ensure their bets on derivatives would net them handsome profits. This created a win-win situation for bankers, who netted huge profits and bonuses, and a lose-lose situation for their customers. If they manipulated rates upwards, borrowers were penalised. If they were manipulated downwards, savers paid the price through falling interest rates. At Barclays, it is reported that staff were offered bottles of champagne to change the rate in the desired direction. This practice has all the hallmarks of insider trading on a massive scale.

The Libor scandal looks likely to dwarf not only endowment and Payment Protection Insurance mis-selling but also interest rate swap arrangements (IRSAs) too, a practice that cost British businesses a fortune. We can only hope Mr Wheatley's report can set the sector on the road back to trust and integrity. Anthony Browne, new head of the BBA, says: "It [banking] is in a pretty low place. Hopefully it can't get lower." Sadly, we cannot bank on that.