Libor Rate Graph: A Comprehensive Guide to the Interbank Lending Rate

The Libor rate graph shows the daily and monthly average rates for different maturities, from overnight to 12 months. This allows you to see how the rate changes over time and how it affects different types of loans and investments.

The Libor rate has a significant impact on the global economy, influencing everything from mortgage rates to credit card interest rates. In the UK, the Libor rate is used to set the base rate for lending, which affects the interest rates for millions of people.

The graph also shows the historical context of the Libor rate, including the significant spikes and drops that have occurred over the years. This can be a valuable resource for anyone looking to understand the Libor rate and its impact on the economy.

LIBOR was a benchmark interest rate for short-term loans between major global banks.

It was a globally accepted key benchmark for the cost of borrowing between banks from 1986 to the 2000s.

The rate was calculated and published each day by the Intercontinental Exchange (ICE).

LIBOR was phased out in 2023, replacing it with the Secured Overnight Financing Rate (SOFR).

It was officially phased out on June 30, 2023.

LIBOR one-week and two-month USD LIBORs stopped publishing as of December 31, 2021.

Some USD rates are still published using a synthetic methodology, but these rates will cease in September 2024.

LIBOR was the average interest rate at which major global banks borrow from one another. It was based on five currencies—the U.S. dollar, the euro, the British pound, the Japanese yen, and the Swiss franc—and served seven different maturities: overnight/spot next, one week, and one, two, three, six, and 12 months.

The combination of five currencies and seven maturities led to a total of 35 different LIBORs calculated and reported each business day. The most commonly quoted rate was the three-month U.S. dollar rate, usually referred to as the current LIBOR.

LIBOR was phased out in June 2023 and replaced by the Secure Overnight Financing Rate (SOFR).

LIBOR has a rich history that dates back to the 1980s. The British Bankers’ Association (BBA) set up BBA interest-settlement rates in 1984 to provide a uniform measure of interest rates across financial institutions.

The BBA interest-settlement rates evolved into BBA LIBOR in 1986, which became the default standard interest rate for transacting in the interest rate- and currency-based financial dealings between financial institutions at the local and international levels.

In 2014, the Intercontinental Exchange took over the administration of BBA LIBOR, renaming it ICE LIBOR. This change marked a significant shift in the administration of the benchmark interest rate.

Here's a brief timeline of the major changes to LIBOR:

The evolution of LIBOR has been shaped by the changing needs of the financial industry and the introduction of new regulations. Despite its changes, LIBOR has remained a crucial benchmark for interest rates in the global economy.

LIBOR was calculated using a unique methodology that involved a panel of global banks. These banks were selected based on their significant role in the London market, and the selection process was held annually.

The Intercontinental Exchange (ICE) asked these banks how much they would charge other banks for short-term loans. The responses were then used to calculate the LIBOR rate.

The ICE used a Waterfall Methodology, which is a standardized, transaction-based, data-driven, layered method. This method involves three levels of calculation:

The ICE then calculated the LIBOR using a trimmed mean approach, which eliminates a small specified percentage of the largest and smallest values before calculating the mean. For LIBOR, figures in the highest and lowest quartile are thrown out, and averaging is performed on the remaining numbers.

LIBOR is used worldwide in a wide variety of financial products, including standard interbank products like forward rate agreements (FRAs) and interest rate swaps.

These products are traded in the money markets, and LIBOR accounts for the liquidity premiums for various instruments traded in these markets. It also serves as an indicator of the health of the overall banking system.

In addition to interbank products, LIBOR is also used in commercial products like floating rate certificates of deposit (CDs) and notes, variable rate mortgages, and syndicated loans. These loans are offered by a group of lenders.

Some examples of hybrid products that use LIBOR include collateralized debt obligations (CDOs), collateralized mortgage obligations (CMOs), and accrual notes, callable notes, and perpetual notes.

IBA requires ICE LIBOR panel banks to make submissions according to the Waterfall methodology. This means they have to estimate the rate at which they could borrow funds in the London Money Market.

The ICE maintains a set of panels of banks, one panel per currency, with 11-16 banks each, which are representative of the overall market by country and institution type. These banks are chosen based on their reputation, market activity, and expertise in the currency concerned.

The ICE surveys these banks' estimates of market activity each business day. The top and bottom quartile market quotes are disregarded, and the middle two quartiles are averaged.

The resulting "spot fixing" is published as the LIBOR rate. This rate is subject to small-sample statistical effects, which can sometimes make the published rates unrepresentative.

LIBOR is used in a wide variety of financial products, including standard interbank products like forward rate agreements and interest rate swaps.

These products are often used by banks and other financial institutions to manage their risk and take advantage of changing market conditions.

Floating rate certificates of deposit (CDs) and notes are another example of commercial products that use LIBOR, offering variable interest rates to investors.

Variable rate mortgages and syndicated loans are also common examples of commercial products that rely on LIBOR.

Hybrid products like collateralized debt obligations (CDOs) and accrual notes also use LIBOR as a reference rate.

Consumer loan-related products like individual mortgages and student loans may also be tied to LIBOR.

LIBOR is a widely used benchmark for interest rates, and it's often used as a standard gauge of market expectations for interest rates finalized by central banks.

Here are some examples of LIBOR-based products and transactions:

In a floating rate bond, the interest payment changes as the value of LIBOR changes, as seen in the example of a bond paying LIBOR + 0.5%.

Interest rate swaps, like the one between Paul and Peter, allow parties to exchange fixed and variable interest receipts, helping them manage their risk and take advantage of changing market conditions.

US 1-Year Dollar Deposits are influenced by LIBOR rates, which are used to determine interest rates for short-term loans and deposits.

The LIBOR rate for 1-year US dollar deposits is 7.93% as of June 2023, but it's not the only rate to consider.

In May 2023, the LIBOR rate for 1-year US dollar deposits was 5.42%, showing a significant increase from the previous month.

Looking at historical data, the LIBOR rate for 1-year US dollar deposits in June 2023 was 5.85%, which is lower than the current rate.

Here's a summary of the LIBOR rates for 1-year US dollar deposits:

The banks that contribute to LIBOR are a diverse group, but have one thing in common: they're all major players in the global banking industry.

Bank of America is one of the contributors, which may not come as a surprise given its size and influence.

The Bank of Tokyo-Mitsubishi UFJ is also on the panel, bringing a unique perspective as a Japanese bank.

Barclays Bank is another contributor, and its involvement in the LIBOR process highlights the importance of international cooperation.

There are 17 member banks in total, each with its own strengths and expertise.

The list of contributors includes some of the biggest names in banking, such as Citibank NA and Credit Agricole CIB.

Deutsche Bank and HSBC are also part of the panel, demonstrating the global reach of LIBOR.

JP Morgan Chase is another contributor, and its involvement underscores the complexity of the LIBOR process.

Lloyds Banking Group, Royal Bank of Canada, and Société Générale are also on the list, highlighting the diversity of the panel.

UBS AG and the Royal Bank of Scotland are also contributors, bringing their expertise to the table.

The remaining contributors are Norinchukin Bank, Rabobank, Sumitomo Mitsui Banking Corporation Europe Ltd, and Credit Suisse.