August 22, 2014

LIBOR Explained

LIBOR refers to the London interbank offered rate (LIBOR) and signifies the rate of interest that banks charge to lend money between one another. Should one bank have money surplus to requirements, then they can loan this money to boost other banks and generate interest on their loan.

The LIBOR rate is usually set on a daily basis by the British Bank’s Association, and this rate is usually derived from input from the big banks. A three-month LIBOR rate should usually just be a few base points higher than the bank rate during ‘normal times’, however it often rises higher during particularly volatile periods as demand is high and willing lenders are lower in number.