LONDON — The British Bankers Association Thursday requested that the U.K. government participate in the regulation and supervision of the setting of the London inter-bank lending rate, a move that could lead to one of the most radical overhauls of the benchmark to date.

"We will now be asking the authorities to consider in what manner the Libor setting mechanism should be regulated in the future," the banking lobby said in a statement.

The announcement comes after Barclays PLC (BCS) agreed to pay several hundred million pounds to settle with regulators in the U.K. and U.S. following a global probe into whether several major banks manipulated inter-bank rates.

The Libor is calculated by Thomson Reuters under the auspices of the BBA and is based on data submitted daily by a 16-bank panel. The benchmark measures the rates at which major banks borrow from each other.

The BBA said in March that a steering group made up of several major banks, including Barclays, would be asked to weigh a wide-ranging review of the methods used to set Libor.

The announcement is a victory for Angela Knight, the BBA's outgoing chief executive, who has been pushing for the government to get involved in the oversight of Libor for some time. She has faced internal resistance, according to a person familiar with the matter. Proceeds from setting Libor help fund the bank lobby. The BBA declined to comment.

Under the new look system being considered, members of the U.K. Treasury, the Bank of England and the Financial Services Authority could sit on a board overseeing the panel of banks that fixes Libor, people familiar with the matters said. The BBA declined to comment on measures being considered during the review. The formal creation of a panel could come within several months, one person said.

The BBA's review, which is the second in four years, is considering the financial instruments included in defining the benchmark following the global probe into allegations that banks fixed inter bank rates. In a statement the BBA said it "has proactively co-operated with the authorities at every stage and will continue to work with the regulatory investigations into Libor." The review is considering all aspects, including the setting process, the BBA said.

"The British Bankers' Association is shocked by yesterday's report about Libor. The banks which contribute to the Libor rate must meet the necessary obligations to their regulators."

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