What Was the Intercoꦆntinental Exchange London Interbank Offered Rate (ICE LIBOR)?

The Inte🐻rcontinental Exchange London Interban🏅k Offered Rate (ICE LIBOR) was the average of the interest rates that some of the world’s leading banks charged each other for short-term loans. It was a benchmark used to set rates for various loans, mortgages, and corporate bonds.

The Intercontinental Exchange (ICE) is the parent company of the New York Stock Exchange (NYSE) and a couple of dozen other exchanges and markets around the world. The ICE Benchmark Administration (IBA) is a unit of ICE and is the actual administrator of LIBOR.

ICE took over the administration of LIBOR from the 澳洲幸运5开奖号码历史查询:British Bankers Association (BBA) in early 2014. However, the entire LIBOR system ceased to be used at the end of June 2023 and was replaced with other benchmarks such as the 澳洲幸运5开奖号码历史查询:S♌terling Overnight 🐻Index Average (SONIA).

In fact, IBA no longer publishes any LIBOR figures, or settings, as historically calculated with member bank contributions. It only reports synthetically-created one-, three-, and six-month USD LIBORs and the three-month GBP LIBOR. These will cease in 2024.

How ICE LIBOR Worked

LIBOR (in common parlance, ICE is often dropped) served as the first step to calculating interest rates on various loans throughout the world. LIBOR was used as a reference rate for commercial loans, derivative products such as swaps or forwards, or bank lending. ♛There were actually several LIBORs—every morning ICE issued benchmark rates for loans in five currencies, and for seven maturities.

The currencies were the U.S. dollar, pound sterling, euro, Japanese yen, and Swiss franc, while the maturities were overnight, one week, and one, two, three, six, and 12 months. That made for 35 different LIBORs. However, th▨e one most commonly quoted was the three-month dollar ꦰrate. 

LIBOR's Use

LIBOR’s practical applications were universal. The rate was included by name in the standard language of many loan documents, and its influence on financial products ranged from the advanced realm of swaps and derivatives to more🎶 co෴mmonplace concerns such as student loans and mortgages.

Once you were approved, you paid a going rate, plus a few 澳洲幸运5开奖号码历史查询:basis points of LIBOR. A decrease in LIBOR would result in a few dollars saved on any subsequent home loan, whether that loan was either directly or implicitly tied to ✤LIBOR. For example, commercial real estate developers may have incurred d♔ebt that was assessed an interest rate of 2.00% + the prevailing one-month LIBOR rate.

LIBOR Calculation

For purposes of calculatingও LIBOR, ICE submitted a questionnaire to its member banks that included the following open-ended꧟ query:

"At what rate could you borrow funds, were you to do so by asking for and then accepting interbank offers in a reasonable market size just prior to 11 a.m. London time?"

Thus, the composition of ICE LIBOR was conditional on the opinions of whichever bank employees were entrusted with answering the que♒stion, with its undefined and ambiguous phrasing.

Depending on the currency involved, anywhere between 11 and 18 of the member banks answered ICE’s question. ICE then ranked the banks’ rate estimates, discarded the top and bottom quartiles, and averaged the remaining 5 to 10 rates.

Special Considerations

One reason why ICE stressed the use of the full term “ICE LIBOR” was because its calculation differed from that used during LIBOR's previous existence under the purview of the BBA. Back then, LIBOR settings were released for an additional five currencies, and for an additional eight maturities.

LIBOR Scandal

Furthermore, BBA calculated the rate by examining and averaging the rates charged by its 200-odd member👍 banks worldwide. This made for a fair consensus rate or should have if one i♕nfluential member bank’s group chair (who was the BBA’s chair emeritus) hadn’t authorized made-up numbers for LIBOR’s daily calculations.

In fact, several BBA member banks conjured rates out of the ether. After the scandal went public in 2012, LIBOR required new oversight.

From BBA to ICE

After ICE took over LIBOR, contributing banks numbered fewer than 20. This would seem to be counterintuitive and offer the potential for wide variance, yet the remaining banks had greater incentive 𓆉to be honest as they reported to a governing body that was less tolerant of suspect behavior.

ICE LIBOR vs. Other Benchmarks

How did LIBOR differ from other major benchmarks, such as the federal funds rate? Well, normally the fed funಞds rate is announced eight times a year after the Federal Open Market C💙ommittee meeting.

Also, the federal funds rate is an instrument of U.S. monetary policy. When the Fed decides that the time is opportune to augment or diminish the nation's money supply, or its growth rate, it lowers or raises the federal funds rate.

Meanwhile, LIBOR was international in scope and was supposed to reflect what interest rates were, rather than what one 💫cou💖ntry’s central bank believes they ought to be.

The Bottom Line

ICE LIBOR referred to the average of the rates that leading banks world-wide charged each other for short-term loans of various maturities. T🍎he most common LIBOR was the three-month USD rate. Except for synthetically determined USD and GDP rates, all LIBOR settings have stopped being published effective June 2023, as part of the plan to wind down the existence of LIBOR.