The London InterBank
Offered Rate,
or LIBOR, is the annualized, 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 five currencies:
CHF (Swiss Franc)
EUR (Euro)
GBP (Pound Sterling)
JPY (Japanese Yen)
USD (US Dollar)
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 LIBOR
as a much needed benchmark for short-term, interbank loans. 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 ICE Benchmark
Administration (IBA).
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 or regulated by
England's central bank, or any other central bank for that matter.
Scroll down this page to read about how
LIBOR is fixed.
How does the IBA fix LIBOR rates denominated in U.S. dollars?
Just before 11:00 a.m. GMT, it polls a specific panel of highly
reputable, high-volume banks which participate in the London
wholesale money market. The IBA finds out the rate at which
each bank on the panel could borrow Eurodollars from other
banks, for specific maturities. The IBA figures out the trimmed
arithmetic mean for each maturity, then publishes these
rates at about 11:45 a.m. GMT. The American banks included
in the panel surveyed by the IBA for U.S. dollar fixing are:
Bank of America N.A.*
JP Morgan Chase Bank N.A.*
Citibank N.A.*
There are 15 non-U.S. banks surveyed for U.S. dollar fixing
in London. These banks are:
Bank of Tokyo-Mitsubishi UFJ Ltd
Barclays Bank plc
BNP Paribas SA*
Credit Agricole Corporate & Investment Bank
Credit Suisse AG*
Deutsche Bank AG*
HSBC Bank plc
Lloyds TSB Bank plc
Rabobank Intl CCRB (Cooperatieve Centrale Raiffeisen
- Boerenleenbank B.A)
Royal Bank of Canada
Société Générale*
Sumitomo Mitsui Banking Corporation Europe Limited
The Norinchukin Bank
The Royal Bank of Scotland plc
UBS AG
* = London Branch
A Eurodollar is a US dollar deposited in any bank outside
the United States.
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including, but not limited to, business loans, personal loans,
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