What is the Now Phased-Out LIBOR? A Trip Down Memory Lane

LIBOR, which stands for the London Interbank Offered Rate, is a benchmark interest rate that indicates the average interest rate at which major banks can borrow from one another in the London interbank market. LIBOR is calculated for various currencies, including the U.S. Dollar (USD), British Pound Sterling (GBP), and Euro (EUR). The rates for these currencies are commonly referred to as USD LIBOR, GBP LIBOR, and EURIBOR, respectively.

• USD LIBOR (U.S. Dollar LIBOR): benchmark interest rate for U.S. Dollar-denominated loans and financial instruments. It is determined daily by a panel of major banks, which submit their estimated borrowing costs. USD LIBOR is widely used in financial markets as a reference rate for various financial products, including adjustable-rate mortgages, business loans, and interest-rate swaps.
• GBP LIBOR (British Pound Sterling LIBOR): benchmark interest rate for British Pound Sterling-denominated loans and financial instruments. Similar to USD LIBOR, it is determined daily based on submissions from a panel of major banks. GBP LIBOR is used as a reference rate for a range of financial products in the UK, such as loans, mortgages, and derivatives.
• EURIBOR (Euro Interbank Offered Rate): benchmark interest rate for Euro-denominated loans and financial instruments. It represents the average interest rate at which a panel of European banks can borrow from one another. Like USD LIBOR and GBP LIBOR, EURIBOR is widely used as a reference rate for Eurozone financial products, including loans, mortgages, and interest rate derivatives.

LIBOR has been phased out and replaced with the following alternative rates:

• In the United States: Secured Overnight Financing Rate (SOFR)
• In the United Kingdom: Sterling Overnight Index Average (SONIA)
• In the Eurozone: Euro Short-Term Rate (ESTR)

We will address these alternatives in a future article.