The London InterBank Offered Rate (LIBOR)
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Chart: U.S. Prime Rate vs. Fed Funds Target Rate vs. 1-Month LIBOR vs. 3-Month LIBOR
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LIBORThe London InterBank Offered Rate, or LIBOR, is the average interest rate at which a select group of large, reputable banks that participate in the London interbank money market can borrow unsecured funds from other banks. There are many different LIBOR rates (maturities range from overnight to 12 months) for numerous currencies, including U.S. dollars. In the United States, the most common LIBOR maturities used in pricing loans -- 1, 3, 6 and 12 months -- can be found below. Back in the mid-1980's, the world banking system adopted the LIBOR
as a much needed benchmark for short-term, interbank loans. The
LIBOR rates are now internationally recognized indexes used for
pricing many types of consumer and corporate loans, debt instruments
and debt securities across the globe. For example, LIBOR is used
as an index for a large percentage of adjustable-rate mortgages
(ARM) in The United States. LIBOR rates are fixed every UK business day by the global media corporation Thomson Reuters, in association with the British Bankers' Association (BBA), a nonprofit trade association. The Fed
Funds Target Rate, America's benchmark interest rate, and the
U.S. Prime Rate
are controlled by America's central bank: the U.S. Federal Reserve.
LIBOR rates, however, are not controlled by England's central
bank, or any other central bank for that matter. Scroll down this
page to read about how LIBOR is fixed.
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