The key rate at which banks lend to each other in dollars hit its highest level in two months yesterday, suggesting there could be more turbulence ahead for the financial system.

The three-month dollar London interbank offered rate reached 2.81 per cent, a level not seen since mid-June. Libor remains particularly elevated when compared with the official overnight rate - the Federal funds rate - of 2 per cent. The difference of 81 basis points between Libor and the Fed funds rate compares with an average spread of about 12bp that prevailed before the onset of the credit squeeze last year.