The London Inter-Bank Offered Rate commonly called Libor is an interest rate average or benchmark between leading London banks. It is a calculation of interest of what banks would charge each other for lending and borrowing. The rates are calculated for 5 different currencies and 7 different loan borrowing timeframes. This includes overnight loans to yearly loans. The Libor is published daily by Reuters and used by many different financial institutions. This can include credit card companies, banks, and mortgage loan providers.
Currently, Libor is issued by Intercontinental Exchange which is also known as ICE. Previously it was issued by the British Banker’s Association and was known as BBA Libor as opposed to ICE Libor. It was introduced and became commonly used in the 1970s by financial institutions. It grew in popularity in the 1980s as banks began trading new financial market instruments. This primarily includes interest rate swaps, forward rate agreements, and foreign currency exchange options.
Libor was also commonly used as part of mortgage rates although it is less common nowadays. Following a scandal in 2012, the usage of Libor has been falling in popularity. Many financial institutes have switched from Libor to a different benchmark since the scandal.
Today Libor is set to be replaced in the UK with Secured Overnight Financing Rate or SOFR. This is due to take place on June 30th, 2023. Besides the SOFR and Libor there are a few different benchmarks that financial institutions use. This includes Sterling Overnight Interbank Rate, or SONIA and AMERIBOR in the USA.