Essay about London Interbank Offered Rate ( Libor )

927 Words May 7th, 2015 4 Pages
London Interbank Offered Rate (LIBOR), is the average interest rate estimated by the leading banks in London and it is widely used as a criterion that banks charge each other for borrowing or lending. LIBOR is calculated every day at 11 a.m. U.K. time by Thomson Reuters Corporation for 15 borrowing terms that range from overnight to one year. Data submitted by the participated banks are used to determine the rates. Once the rates are submitted, Thomson Reuters takes out the 4 highest and the 4 lowest, then take the mean of the rest as the LIBOR rate. According to John Kiff (Dec, 2012), a U.K Treasury Report shows that $300 trillion in financial contract are tied to LIBOR - and that doesn’t include rates on uncounted tens of billions of dollars of adjustable rate home mortgages and other consumer loans around the globe in which LIBOR, in one way or another, is referenced. ₍₁₎ The British Bankers’ Association (BBA) explained that LIBOR is also being used as the basis for settlement of interest rate contracts on many of the world’s major futures and options exchanges. (Christopher, A. & Mohammed A. S., Dec, 2013) ₍₂₎

The British Bankers’ Association (BBA) has promoted the rate-setting process as highly transparent and impartial, making LIBOR a good benchmark for various financial products as they argued that no one institution can single-handedly alter the calculations behind the rate. (Michael J., July 2012) ₍₃₎ Sadly, in June 2012, Barclays bank admitted to improper…

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