LIBOR

The London Interbank Offered Rate (LIBOR) was the benchmark interest rate at which major global banks lent to one another in the international interbank market. Published daily for five currencies and seven maturities, LIBOR underpinned over $350 trillion in financial products including mortgages, corporate loans, and derivatives. For example, a corporate loan might be priced at LIBOR + 200 basis points. LIBOR was calculated by polling major banks on their estimated borrowing costs, discarding outliers, and averaging the rest. The 2012 manipulation scandal revealed banks were submitting false rates to profit on trading positions and appear healthier during the crisis. This led to criminal charges, billions in fines, and LIBOR’s eventual replacement. LIBOR ceased for most currencies in 2021, with USD LIBOR ending June 2023. It was replaced by risk-free rates like SOFR (Secured Overnight Financing Rate) in the U.S. and SONIA in the UK. The transition required amending millions of contracts.