A Comprehensive Look at London Interbank Offered Rate LIBOR Historical Rates

London Interbank Offered Rate (LIBOR) has been a crucial benchmark for short-term interest rates since its inception in 1969. It was first calculated by the British Bankers' Association (BBA) to help facilitate the lending and borrowing of money between banks.

LIBOR rates were initially set for seven currencies, including the US dollar, euro, and yen, with the British pound being the original base currency. The rates were based on a survey of leading banks, which were asked to submit their estimated rates for borrowing and lending.

The LIBOR rates were published daily, and they were used as a reference point for a wide range of financial instruments, including mortgages, credit cards, and derivatives. The rates were also used to determine the interest rates on loans and other financial products.

LIBOR stands for “London Inter-Bank Offered Rate,” which is based on rates that contributor banks in London offer each other for inter-bank deposits.

From a bank's perspective, deposits are funds that are loaned to them, making this rate a key indicator of how much it costs for a bank to borrow money.

There are hundreds of rates reported each month in numerous currencies, making the calculations very complex.

The 1 Year LIBOR, also known as the 12 Month LIBOR, is commonly used to benchmark adjustable loans, and is reported on or after the first of the month.

The reported LIBOR rate for February, for example, is the rate published on February 1, reflecting the rate for the day of January 31.

Prior to July 2007, the Fannie Mae LIBOR was published as a standard adjustable rate mortgage index, but it was discontinued at the end of June 2007.

LIBOR was officially established in 1986 by the British Bankers' Association (BBA), now part of UK Finance, to create a standard benchmark for the financial industry.

The BBA responded to the 2008 financial crisis by modifying its survey question, asking panel members what they could actually borrow funds for, rather than what they thought.

The first Libor rates were released in January 1986 for three currencies: the U.S. dollar, the British sterling, and the Japanese yen.

Calculating LIBOR involved a daily panel of banks submitting their estimated borrowing rates to the Intercontinental Exchange (ICE).

Each day, ICE received these submissions from the panel of banks.

The highest and lowest quartiles of the submitted rates were removed to prevent manipulation and ensure accuracy.

The remaining rates were then averaged to determine the final LIBOR rate for each currency and maturity.

This process was designed to provide an accurate reflection of the interbank lending market.

The resulting LIBOR rates were used to set interest rates for loans and other financial instruments.

By removing the highest and lowest quartiles, ICE aimed to minimize the impact of outliers and ensure a fair representation of market conditions.

The average of the remaining rates provided a reliable benchmark for the interbank lending market.

In 1986, the British Bankers' Association (BBA) officially established LIBOR as a standard benchmark for the financial industry.

LIBOR's roots go back to the late 1960s, when it began appearing in syndicated loans and floating rate notes.

In 1984, the BBA created a panel of banks to determine a standard method for determining interest rates on loans, which ultimately led to the creation of LIBOR.

The BBA's survey question, "At what rate do you think interbank term deposits will be offered by one prime bank to another prime bank for a reasonable market size today at 11 a.m.?", was used to determine the initial LIBOR rates.

The first LIBOR rates were published by the BBA in January 1986 for three currencies: the U.S. dollar, the British sterling, and the Japanese yen.

In response to the 2008 financial crisis, the BBA modified its survey question to "At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 a.m.?"

LIBOR has a rich history that dates back to the late 1960s, but it wasn't until 1986 that it was officially established by the British Bankers' Association (BBA) as a standard benchmark for the financial industry.

The first LIBOR rates were published in 1986, and since then, it has become a widely used reference rate for a variety of financial products, including mortgages, bonds, and derivatives.

One of the key features of LIBOR is that it is calculated based on a panel of banks, which submit their interest rates for a given currency and maturity. This process involves discarding the highest and lowest 25% of the rates, averaging the middle 50%, and then calculating the final average.

For example, let's say there are 8 banks on the panel, and they submit the following 1-month USD LIBOR rates: 1.00, 1.02, 1.06, 1.07, 1.08, 1.09, 2.00, 2.02. To calculate the LIBOR rate, you would first discard the highest and lowest 25%, which in this case would be 2.02 and 1.00. Then, you would average the remaining rates, which would be 1.02, 1.06, 1.07, 1.08, 1.09. Finally, you would calculate the average of these rates, which would be 1.0752%.

Here is a snapshot of the historical LIBOR rates compared to the fed funds rate since 1986:

In April 2008, the three-month LIBOR rate rose to 2.9%, even as the Federal Reserve lowered the fed funds rate to 2%. This divergence was due to banks becoming more hesitant to lend to each other, fearing the collateral included subprime mortgages.

The 1-Year Monthly Report Definition is a key part of understanding LIBOR's history.

1-Year LIBOR was also known as the 12 Month Libor, but it's no longer published. The last official rate was for June 30, 2023, which was published as the July rate.

This change in publication occurred due to the cessation of the 1 Year LIBOR rate.

The LIBOR scandal, also known as Liborgate, shook the financial world in 2012. It revealed that several banks had colluded to manipulate the rate for profit.

Traders and managers at some of the world's largest banks systematically altered borrowing rates. This led to hefty fines for the banks involved and a severe loss of confidence in LIBOR.

Barclays bank was fined millions by both the US and British regulators. The US regulator, the CFTC, fined $400 million, while the British regulator, the FSA, fined £59.5 million.

In 2012, the LIBOR manipulation scandal, known as Liborgate, shook the financial world, revealing that several banks had colluded to manipulate the rate for profit.

Several banks, including RBS, HSBC Holding, JPMorgan, Deutsche, Barclays, UBS, and Citi, were investigated and received subpoenas as part of a joint NY-Connecticut investigation.

The first three arrests were made in the scandal, and UBS was fined $1.5 billion to settle charges of rigging.

Barclays employees actively raised concerns with regulators, including the British Bankers’ Association, the FSA, and the Federal Reserve Bank of New York, reporting that other banks were dishonestly submitting low interbank rates.

UBS was fined $1.5 billion, while Barclays bank was fined millions, with the US regulator, the CFTC, fining $400 million and the British regulator, the FSA, fining £59.5 million.

The scandal led to hefty fines for the banks involved and a severe loss of confidence in LIBOR, resulting in $1.2bn in combined fines to the US Department of Justice (DoJ) and the Commodities Futures Trading Commission, £160m to the UK’s Financial Services Authority (FSA), and 59m Swiss francs (£40m) to the Swiss Financial Market Supervisory Authority.

The collapse of Lehman Brothers was a pivotal moment in the LIBOR scandal.

In 2008, Lehman Brothers filed for bankruptcy, which led to a spike in LIBOR rates.

This event highlighted the interconnectedness of the financial system and the potential for a single institution's collapse to have far-reaching consequences.

The LIBOR rates spiked after the collapse, making it harder for other financial institutions to access credit and further exacerbating the economic downturn.

The aftermath of Lehman Brothers' collapse served as a catalyst for the subsequent LIBOR scandal, which revealed widespread manipulation of the LIBOR rate.

The transition away from LIBOR was a significant undertaking by financial regulators worldwide. They focused on restoring integrity and reliability to the rate-setting process.

In response to the scandal, regulators took swift action, launching a project to transition away from LIBOR. This was a major effort to regain trust in the financial system.

The project aimed to replace LIBOR with a more reliable and transparent alternative, ensuring that the rate-setting process was fair and unbiased.

The impact of LIBOR on the global financial system is staggering. It underpinned approximately $400 trillion in financial contracts worldwide.

LIBOR played a central role in determining interest rates for consumer and business loans, significantly shaping borrowing costs and influencing investment returns across various sectors.

As a widely trusted benchmark, LIBOR contributed to transparency and stability in financial markets, enabling the efficient pricing of financial instruments and supporting smooth market operations.

The scale of LIBOR's influence is hard to overstate, with its effects felt across the entire financial landscape.

Benchmark Transition Announcements are a crucial part of the transition process, and companies are taking notice. Many organizations are announcing their transition plans to ensure a smooth transition for their customers and stakeholders.

One notable example is the announcement by XYZ Corporation, which revealed its plans to transition to a new benchmark system by the end of the year. This announcement was made to give customers and investors adequate time to prepare.

The transition timeline is a critical aspect of any benchmark transition, and companies are being transparent about their plans. ABC Inc. has announced a 6-month transition period, during which they will gradually phase out their old benchmark system.

A transparent transition process is essential to maintain trust and confidence in the company. By providing regular updates and communication, companies can keep their stakeholders informed and engaged throughout the transition process.

The transition process can be complex, but companies are working to make it as seamless as possible. For instance, DEF Company has implemented a comprehensive transition plan that includes training and support for customers and employees.

Companies are also taking steps to ensure a smooth transition for their customers. For example, they are providing clear instructions on how to access and use the new benchmark system.

Calculating LIBOR in numbers is a straightforward process, but it's essential to understand the steps involved.

The first step is to discard the highest and lowest 25% of the submitted rates, which is a standard practice in calculating LIBOR.

For example, if there are 8 banks on the panel and they submit rates like 1.00, 1.02, 1.06, 1.07, 1.08, 1.09, 2.00, and 2.02, we would discard the rates 2.00 and 2.02 as they are the highest and lowest rates.

The middle 50% of the rates are then averaged to calculate the final LIBOR rate. In our example, the middle 50% rates are 1.06, 1.07, 1.08, and 1.09.

To calculate the final LIBOR rate, we take the average of these middle 50% rates. For our example, the average is 1.0752%.

The Alternative Reference Rates Committee (ARRC) is a notable entity in the LIBOR transition process. They released a final statement on December 4, 2023, marking the end of their work.

The Canadian Alternative Reference Rate Working Group (CARR) is another key player in the transition. They amended the recommended fallback for CDOR NHA MBS on November 30, 2023, and published a guide for Canadian companies transitioning from CDOR.

The International Swaps and Derivatives Association (ISDA) is also involved in the transition process. They published the Future Cessation Guidance for the Bloomberg Short-Term Bank Yield Index on November 20, 2023.

The Office of the Superintendent of Financial Institutions (OSFI) updated Canadians on the Canadian Dollar Offered Rate transition on October 24, 2023. This update provided clarity on the transition process.

The Bank of Canada and the Canadian Fixed-Income Forum are also entities that have been involved in the LIBOR transition. The Bank of Canada recommended a path for winding down the BA market on October 16, 2023, while the Canadian Fixed-Income Forum provided an update from the BA Transition Virtual Network on September 13, 2023.

The Loan Syndications & Trading Association and the Loan Market Association are also entities that have been involved in the LIBOR transition. The Loan Syndications & Trading Association published an article on LIBOR transition on September 13, 2023, while the Loan Market Association has guidelines on methodology and oversight under the Benchmarks Regulation.

The United Kingdom played a significant role in the history of LIBOR. The UK is home to many of the world's largest banks, which contributed to the development and calculation of LIBOR.

The British Bankers' Association (BBA) was responsible for calculating LIBOR in the UK from 1986 to 2014. The BBA ceased to be the administrator of LIBOR in 2014.

The UK's financial sector was heavily involved in the LIBOR scandal, with several major banks fined for manipulating the rate. The LIBOR scandal led to significant changes in the way the rate is calculated and regulated.

The UK's Financial Conduct Authority (FCA) now oversees the administration of LIBOR, working closely with the International Organization of Securities Commissions (IOSCO). The FCA's role in regulating LIBOR has helped to increase transparency and trust in the financial markets.