London Inter-Bank Offer Rate (LIBOR)

Subject – Economy

Context – LIBOR transition will be a complex exercise.

Concept –

LIBOR is the most common benchmark interest rate index used for Corporate and Government Bonds, mortgages, student loans, credit cards, derivatives and other Financial Products.
LIBOR is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans.
LIBOR serves as a globally accepted key benchmark interest rate that indicates borrowing costs between banks.
The rate is calculated and will continue to be published each day by the Intercontinental Exchange (ICE), but due to recent scandals and questions around its validity as a benchmark rate, it is being phased out.
It serves for maturities from Overnight to 1 year and on each day there are 35 different LIBOR rates published by British Bankers Association (BBA).
LIBOR is presently administered by ICE Benchmark Administration (IBA) and is regulated by the UK’s Financial Conduct Authority (FCA).
According to the Federal Reserve and regulators in the UK, LIBOR will be phased out by June 30, 2023, and will be replaced by the Secured Overnight Financing Rate (SOFR).