Several large international banks have voted to replace a key inter-bank lending rate.

A committee comprising some of the largest international banks has voted to replace the London Inter-bank Offered Rate with a broad US Treasuries repo financing rate.

A repurchase agreement, or repo, is a form of short-term borrowing for dealers in government securities. 

The Alternative Reference Rates Committee selected the new rate, which was jointly proposed by the Federal Reserve Bank of New York and the Office of Financial Research, as the rate that represents best practice for use in US dollar derivatives and other financial contracts, the ARRC said in a statement.

LIBOR has been at the center of controversy in the financial world in recent times, and investigations have sparked a large number of legal cases involving banks that have allegedly manipulated the rate. In 2015, Deutsche Bank received a record $2.5 billion fine from four different regulators in the UK and US for trying to manipulate interest rates, including LIBOR.

According to the ARRC, it considered a variety of factors before selecting the repo rate. The committee found as a reference rate, the repo is “the most appropriate for wide-spread and long-term adoption”.

The ARRC held a public roundtable to discuss its interim report and listened to the views of an advisory group of end users before making its decision. The committee will refine its proposed transition plans for the change by developing implementation options with members of the advisory group.

“The ARRC today took an important step to strengthen the financial system by selecting a robust alternative reference interest rate," said Sandra O’Connor, chair of the ARRC and a JP Morgan executive. "I am proud of the committee’s work, and look forward to our continued efforts to promote the widespread adoption and use of this rate."

The final report of the ARRC will be published later this year before implementation is expected to begin.