What Is London Interbank Offered Rate (LIBOR)?

London Interbank Offered Rate (LIBOR) is an interest rate at which banks can borrow funds from other banks in the London interbank market. One of the world’s most widely used benchmarks for short-term interest rates, LIBOR rates were first used in financial markets in 1986. From then on LIBOR has been growing in

stature and today it is the key reference rate for financial products worth about $350 trillion. Small changes in the LIBOR can cause ripples in the money market.

LIBOR is fixed on a daily basis by the British Bankers’ Association and is derived from a filtered average of the world’s most creditworthy banks’ interbank deposit rates. Countries that rely on t he LIBOR for a reference rate include the United States, Canada, Switzerland and the United Kingdom.

In 2012, regulators from around the world were probing alleged manipulation of LIBOR by US and European banks. In 2013, a worldwide investigation discovered widespread manipulation of this benchmark interbank lending rates by traders and brokers.