Libor

The London Inter-Bank Offered Rate (Libor /ˈlaɪbɔːr/ LY-bor) was an interest rate average calculated from estimates submitted by the leading banks in London. Each bank estimated what it would be charged were it to borrow from other banks. It was the primary benchmark, along with the Euribor, for short-term interest rates around the world. Libor was phased out at the end of 2021, with market participants encouraged to transition to risk-free interest rates such as SOFR and SARON.

LIBOR was discontinued in the summer of 2023. The last rates were published on 30 June 2023 before 12:00 pm UK time. The 1 month, 3 month, 6 month, and 12 month Secured Overnight Financing Rate (SOFR) is its replacement. In July 2023, the International Organization of Securities Commissions (IOSCO) said four unnamed dollar-denominated alternatives to LIBOR, known as "credit-sensitive rates", had "varying degrees of vulnerability" that might appear during times of market stress.

Libor rates were calculated for five currencies and seven borrowing periods, ranging from overnight to one year, and were published each business day by Thomson Reuters. Many financial institutions, mortgage lenders, and credit card agencies set their own rates relative to it. At least $350 trillion in derivatives and other financial products were tied to Libor.

In June 2012, multiple criminal settlements by Barclays Bank revealed significant fraud and collusion by member banks connected to the rate submissions, leading to the Libor scandal. The British Bankers' Association said on 25 September 2012 that it would transfer oversight of Libor to UK regulators, as proposed by Financial Services Authority managing director Martin Wheatley's independent review recommendations. Wheatley's review recommended that banks submitting rates to Libor must base them on actual inter-bank deposit market transactions and keep records of those transactions, that individual banks' Libor submissions be published after three months, and recommended criminal sanctions specifically for manipulation of benchmark interest rates. Financial institution customers may experience higher and more volatile borrowing and hedging costs after implementation of the recommended reforms. The UK government agreed to accept all of the Wheatley Review's recommendations and press for legislation implementing them.

Significant reforms, in line with the Wheatley Review, came into effect in 2013 and a new administrator took over in early 2014. The British government regulated Libor through criminal and regulatory laws passed by Parliament. In particular, the Financial Services Act 2012 brought Libor under UK regulatory oversight and created a criminal offence for knowingly or deliberately making false or misleading statements relating to benchmark-setting.

The London Interbank Offered Rate (LIBOR) came into widespread use in the 1970s as a reference interest rate for transactions in offshore Eurodollar markets. In 1984, it became apparent that an increasing number of banks were trading actively in a variety of relatively new market instruments, notably interest rate swaps, foreign currency options and forward rate agreements. While recognizing that such instruments brought more business and greater depth to the London Inter-bank market, bankers worried that future growth could be inhibited unless a measure of uniformity was introduced. In October 1984, the British Bankers' Association (BBA)—working with other parties, such as the Bank of England—established various working parties, which eventually culminated in the production of the BBA standard for interest rate swaps, or "BBAIRS" terms. Part of this standard included the fixing of BBA interest-settlement rates, the predecessor of BBA Libor. From 2 September 1985, the BBAIRS terms became standard market practice. BBA Libor fixings did not commence officially before 1 January 1986. Before that date, however, some rates were fixed for a trial period commencing in December 1984.

Member banks are international in scope, with more than sixty nations represented among its 223 members and 37 associated professional firms as of 2008. Seventeen banks for example contributed at one point to the fixing of US Dollar Libor. The panel contains the following member banks:

Libor was widely used as a reference rate for many financial instruments in both financial markets and commercial fields. There were three major classifications of interest rate fixings instruments, including standard inter-bank products, commercial field products, and hybrid products that often used Libor as their reference rate.