The London InterBank
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:
In the United States, the most common LIBOR maturities used in pricing
loans -- 1, 3, 6 and 12 months -- can be found below.
- CHF (Swiss Franc)
GBP (Pound Sterling)
JPY (Japanese Yen)
USD (US Dollar)
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
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.