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London Interbank Offered Rate (LIBOR)

Posted on August 5, 2022 by admin1  205

In News 

(LIBOR) rose for the fourth straight session, rising roughly 2.5 basis points to 2.83229%, the highest since November 2008. 

What Is London Interbank Offered Rate (LIBOR)?

  • It is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans.
  • It serves as a globally accepted key benchmark interest rate that indicates borrowing costs between banks. 
  • Administered by
    • the Intercontinental Exchange, which asks major global banks how much they would charge other banks for short-term loans.
  • Calculation of rate 
    • The rate is calculated using the Waterfall Methodology, a standardised, transaction-based, data-driven, layered method.
  • Replacement
    • It has been subject to manipulation, scandal, and methodological critique, making it less credible today as a benchmark rate.
    • It is being replaced by the Secured Overnight Financing Rate (SOFR) on June 30, 2023, with phase-out of its use beginning after 2021.
 
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