What Is LIBOR and Why is it Slated to End?

The LIBOR, short for London Interbank Offered Rate, is a fluctuating short-term interest rate that influences the way other interest rates are set in the world of finance. It is also used to gauge the overall health of the financial lending system on a global scale.

▪ Every business day the Intercontinental Exchange or ICE Benchmark Administration (IBA) calculates the average interest rate after asking an elite panel of 15 global banks how much they are charging other banks for short-term loans.

▪ The daily fluctuating LIBOR rates vary, depending on the length of the loan. At the end of September 2020, the USD Three-month LIBOR rate – the most significant and commonly quoted, also referred to as the current LIBOR – was 0.25%

▪ LIBOR acts as a benchmark for many consumer loans, investments, and other financial products. Adjustable-Rate Mortgages (ARM) and private student loans are commonly based on LIBOR. Examples of investments based on LIBOR are financial derivatives and Certificates of Deposit (CD).

▪ LIBOR is set for regulatory phase-out in 2021. After that date, banks will no longer be required to publish their LIBOR rates. Replacements are already being evaluated, with the secured overnight financing rate (SOFR) being the most likely candidate.



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