Risk glossary


London interbank offered rate (Libor)

Libor was a floating interest rate benchmark until June 2023, when global regulators completed a shutdown of the reference rate following a manipulation scandal.

Libor tracked the cost of unsecured borrowing for large banks across five currencies and seven maturities, from overnight to 12 months. Originally launched in 1986 by the British Bankers’ Association, it was widely used as a reference rate for derivatives, loans and securitisations. 

Confidence in Libor was hit during the financial crisis of 2007/8, when banks attempted to manipulate the benchmark to make money on interest rate swap positions, or to conceal increased funding costs. The resulting scandal prompted financial authorities in 2013 to recommend the adoption of alternative reference rates to replace Libor.

These alternative risk-free rates (RFRs) include the secured overnight financing rate (SOFR) in the US and the sterling overnight index average (Sonia) in the UK. These rates are deemed more reliable than Libor because they are based on completed transaction data, whereas Libor was based on borrowing estimates.

Libor fixings in euro, Japanese yen, Swiss franc and sterling ceased at the end of 2021. The final currency, US dollar, ended 18 months later. A synthetic version of Libor in some currencies and maturities continued for a period, but these are all due to stop by the end of 2024.

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