“It’s the interest rate banks charge each other.”

The London Interbank Offered Rate is a daily reference rate based on the interest rates at which an institution (ie. a bank) can borrow unsecured funds from other institutions in the London wholesale money (or interbank) market.

It is essentially similar to the US Federal funds rate – the interest rate at which private depository institutions lend balances at the Federal Reserve to other depository institutions.

The British Bankers’ Association publishes the day’s LIBOR at around 12.00 UK time. It’s a weighted average of the deposit rates offered by the participating banks for maturities ranging from overnight to one year. LIBOR is calculated for 10 major currencies.

Forex traders have an interest in LIBOR rates, simply as a gauge of respective currency strengths. (What the LIBOR rate isn’t, is the central bank, ie. Bank of England, Federal Reserve, etc. base interest rate – different thing entirely…)

LIBOR rates fixed? Surely not…
Last year, it was reported that banks might have systematically understated the borrowing costs they reported to LIBOR – this would create the false impression of interbank credit being much cheaper than it actually was, and therefore that the whole banking system was healthier than it actually was. Then the credit crunch hit….

If you’re desperate for more on this exciting topic, you can always download the data here.