Editorial: All power to Mr Wheatley's elbow

The Deputy Governor of the Bank of England called it a "cesspit", and how right he was. The scandal over the manipulation of the Libor interest rate that hit Barclays this summer, and threatens to engulf any number of other large banks in the future, only confirmed critics' worst fears about the buccaneering financial services industry.

Nor does further enquiry paint any rosier a picture. In a speech at the Mansion House in London this morning, veteran financier Martin Wheatley will set out the conclusions of his seven-week investigation into Libor. To his credit, he is not pulling his punches.

Judging by Mr Wheatley's analysis, the benchmark used to value hundreds of trillions of pounds worth of financial transactions could hardly be more casually managed. The method for setting the rate – using banks' unverified estimates of the price they are paying to borrow from their peers – has a conflict of interest at its heart; opportunities for manipulation have been systematically exploited by banks; oversight by the British Bankers' Association has been "careless"; and the industry's regulator has had no role at all.

Damning, indeed. How, then, to restore much-needed credibility to one of the world's most vital financial metrics? Mr Wheatley's proposals have much to recommend them. For a start, banks will have to prove that their submissions are based on actual transactions, subject to external audits. Meanwhile, governance of the system will be removed from the BBA, with an open tender to find a replacement; and the Financial Services Authority will, in future, regulate the rate-setting process, approve bank staff responsible for making submissions, and be able to bring criminal charges against any attempts at manipulation.

Not a moment too soon. The Libor scandal has tarnished the City at least as badly as the incomprehensible derivatives or the over-sold mortgages. Only radical reform can hope to scrub away the stain.