The cost of three-month dollar loans between banks fell to an all-time low Friday as markets awaited details of the methodology the U.S. government has used in its stress tests of the country's 19 major financial institutions. Officials will privately begin telling the institutions how they performed in the tests later Friday but investors will be scrutinizing the methodology for clues about which banks may be in trouble. The results won't be publicly released until May 4. Article Controls EMAIL REPRINT NEWSLETTER COMMENTS SHARE YAHOO! BUZZ Earlier this week, U.S. Treasury Secretary Tim Geithner managed to ease some market concerns that the banks may need further big injections of capital when he said that the "vast majority" are well-capitalized. Solid earnings from many of the country's banks and an apparent stabilization in stock markets has also helped soothe concerns and prompted a renewed fall in the interbank lending rate. The British Bankers' Association said the rate on three-month loans in dollars - known as the London Interbank Offered Rate, or Libor - fell 0.02 of a percentage point to the new record low of 1.07 percent. The previous all-time low of 1.08 percent was set in mid-January. Nevertheless, caution remains the watchword as the economy is forecast to contract for most of the year, if not all. "Although banks have broadly managed to outperform expectations in the current earnings cycle, provisions for credit losses have risen across the board and the outlook remains challenging as economic activity and the labour market continue to deteriorate," said Geoffrey Yu, an analyst at UBS ( UBS - news - people ). The equivalent rate for three-month loans in euros - known as the European Interbank Offered Rate, or Euribor - and the three-month sterling rate were unchanged at 1.40 percent and 1.49 percent. Related Stories Credit Markets Start To Thaw Let The Public Buy Toxic Assets Homes: Rent Now, Look To Buy Street Ends Higher, TARP Covers Insurers Taylor Rules Stories Videos Interbank lending rates affect the wider economy by determining the costs of loans to households and businesses. They had spiked higher since the start of the financial crisis, and have only been falling gradually as governments and central banks around the world announced a raft of measures to stimulate the global economy and financial sector. All three rates are well down on their peaks after big interest rate cuts from the U.S. Federal Reserve, the European Central Bank and the Bank of England. As well as falling sharply, the spread between the Libor rates and the market's expectations for the benchmark rates in three months time have narrowed sharply, indicating that banks are more willing to take on risks. All three spreads are now below one percentage point. Though the U.S. Federal Reserve cannot reduce its rate from the current 0-0.25 percent range and the Bank of England has indicated that its rate-cutting campaign has ended with the benchmark rate at 0.5 percent, the European Central Bank is expected to reduce borrowing costs further in the months ahead from the current 1.25 percent. Before the financial crisis became most acute in the wake of Lehman Brothers ( LEHMQ - news - people )' bankruptcy, the spreads were around 0.75 percentage points. And before the credit crunch started, they were well below 0.5 percentage points.

Source