LIBOR Index
The London Interbank Offered Rate (LIBOR) is a benchmark interest rate at which major global banks lend to one another. It is used as a reference rate for many financial products, such as adjustable rate mortgages, credit cards, and student loans. LIBOR is also used to calculate the interest rate on some derivatives contracts, such as interest rate swaps.
LIBOR is set by the British Bankers’ Association (BBA) and is based on the interest rates at which banks borrow from each other. The rate is calculated from the average of the rates submitted by a panel of leading banks in London. The panel consists of 16 banks, including Barclays, Citigroup, HSBC, JPMorgan Chase, and UBS.
LIBOR is published daily and is available in five different currencies (U.S. dollar, euro, British pound, Japanese yen, and Swiss franc). The rate is calculated for seven different maturities, ranging from overnight to one year. The most commonly used LIBOR rate is the three-month U.S. dollar rate.
History of LIBOR
LIBOR was first published in 1986 by the British Bankers’ Association. It was initially used as a reference rate for the London interbank market, but it has since become a global benchmark rate. In 2013, the U.K. government announced that it would be phasing out LIBOR by 2021 and replacing it with a new benchmark rate, the Sterling Overnight Index Average (SONIA).
Comparison Table
| Currency | Overnight | 1 Week | 1 Month | 3 Months | 6 Months | 1 Year |
|---|---|---|---|---|---|---|
| USD | 0.10% | 0.15% | 0.20% | 0.25% | 0.30% | 0.35% |
| EUR | -0.05% | 0.00% | 0.05% | 0.10% | 0.15% | 0.20% |
| GBP | 0.00% | 0.05% | 0.10% | 0.15% | 0.20% | 0.25% |
| JPY | -0.10% | -0.05% | 0.00% | 0.05% | 0.10% | 0.15% |
| CHF | -0.20% | -0.15% | -0.10% | -0.05% | 0.00% | 0.05% |
Summary
The LIBOR index is a benchmark interest rate used to calculate the interest rate on many financial products, such as adjustable rate mortgages, credit cards, and student loans. It is set by the British Bankers’ Association and is based on the interest rates at which banks borrow from each other. LIBOR is published daily and is available in five different currencies. The U.K. government has announced that it will be phasing out LIBOR by 2021 and replacing it with a new benchmark rate, the Sterling Overnight Index Average (SONIA). For more information about LIBOR, visit the British Bankers’ Association website.
See Also
- Interest Rate Swap
- Adjustable Rate Mortgage
- Credit Card
- Student Loan
- Sterling Overnight Index Average (SONIA)
- Federal Funds Rate
- Prime Rate
- Treasury Bill Rate
- Treasury Bond Rate
- Treasury Note Rate
