The term LIBOR refers to the «London Interbank Offered Rate». It is sometimes referred to as the interbank rate.
The LIBOR indicates the average of interest rates charged by major international banks when they lend money (provide credit). Participating banks report their daily interest rates to Thomson Reuters at 11:00AM London time (Western European Time) on weekdays.
The calculation is carried out according to criteria set by Thomson Reuters using the reported interest rates from 8, 12 or 16 banks. Participating banks are sometimes referred to as panel banks, and vary depending on the currency in question. Because of the strict eligibility criteria which banks must meet in order to be considered panel banks, it can be assumed that resulting rates represent some of the lowest in London.
However, only the 50 percent of interest rates in between the lowest 25 percent and the highest 25 percent are factored into the LIBOR rate calculation. The rates provided by banks represent the expected interest rates for a specified time period, rather than their current rates at the time of the survey.
LIBOR rates can also be negative. When LIBOR rates fall into the minus, a bank that generates credit has to pay a fee to the bank that accepts that credit.
LIBOR rates are calculated for 7 different time spans. These include 1 day (overnight), 1 week, 2 months, 3 months, 6 months and 12 months.
The 5 main currencies for which LIBOR rates are generated include the euro (EUR), U.S. dollar (USD), Swiss franc (CHF), Japanese Yen (JPY) and British Pound Sterling (GBP).
LIBOR rates are released every weekday (working days) at 11:45AM Western European Time. The rates are then published at a later time by ICE benchmark Administration (IBA) partners like Global Rates.
Because LIBOR rates are used as a benchmark for numerous financial products, they not only affect the banking industry, but also have far-reaching effects on personal finance products like mortgages and savings accounts.