7/31/2019 Fast Facts: What is LIBOR?

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To: Fast Facts List

Fast Facts: WHAT IS LIBOR?

There has been a lot of Congressional and press attention paid to LIBOR. Here is

some useful background:

FACT: The London Interbank Offer Rate (LIBOR) is a benchmark rate of how much it

costs large banks in London to borrow money from each othereach business day. It is

calculated and published byThomson Reuterson behalf of theBritish Bankers'

Association (BBA).

There are actually150 LIBOR rates published each day, reflecting interbank

borrowing costs in 10 major currencies and for 15 borrowing periods ranging from

overnight to 12 month loans.

FACT:To calculate LIBOR, the BBA polls 18 banks every day with the following question:

At what rate could you borrow funds, were you to do so by asking for and then accepting

inter-bank offers in a reasonable market size just prior to 11 am?

The BBA throws out the highest and lowest portion of the responses, and

averages the middle.

At 11:30 am (London time), Thomson Reuters publishes the LIBOR average.

FACT: LIBOR itself is not an interest rate, but it is used to set short term interest rates

around the world.

It is estimated that$550 trillion of interest rate derivatives contractsare based on

LIBOR rates.

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One estimate by staff of the Federal Reserve Bank of Cleveland found that45% of

prime adjustable rate mortgagesuse LIBOR as the benchmark.

A financial adviser to municipalities stated that about75% of municipalitieshave

some contracts tied to the index.

FACT: LIBOR is unique because:

It is reported daily, whereascentral banks such as the Bank of England and the

Federal Reserve fix official base rates monthlyand interest rates are subject to

monetary policy.

It is London-based,where more than 20% of all international bank lending and

more than 30% of all foreign exchange transactions now take place.There are

similar indexes by other banking associations for borrowing costs in otherlocations, (EURIBOR for Europe, and TIBOR for Tokyo).

FACT:LIBOR was first developed in the 1980sas demand grew for an accurate measure

of the real rate at which banks could borrow money from each other. This became

increasingly important as London's status grew as an international financial center.

The 18 Banks on the Reporting Panel for LIBOR

1. Bank of America

2. Bank of Tokyo-Mitsubishi UFJ

3. Barclays Bank

4. BNP Paribas

5. Credit Agricole

6. Credit Suisse

7. Citigroup

8. Deutsche Bank

9. HSBC

10. JP Morgan Chase11. Lloyds Banking Group

12. Rabobank

13. Royal Bank of Canada

14. Socit Gnrale

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15. Sumitomo Mitsui Banking Corporation

16. The Norinchukin Bank

17. The Royal Bank of Scotland Group

18. UBSSource: British Bankers Association

Financial Services HOTLINE: If you have questions about this topic or any other issue facing financial

services, please reach out to Abby McCloskey, Director of Research at the Financial Services

Roundtable, at 202-589-2531 or Scott Talbott, Senior Vice President of Government Affairs, at 202-289-

4322.

Learn more about the Financial Services Industry atwww.OurFinancialFuture.com.

OurFinancialFuture.com is continuously updated to bring you the most useful information about the

industry in real-time.

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