LIBID vs. LIBOR: An Overview

LIBID and LIBOR were once key reference rates in the London interbank market, where banks exchanged funds directly or through electronic trading platforms. LIBOR (London Interbank Offered Rate) represented the rate at which banks lent funds to one another. LIBID (Lon𒀰don Interbank Bid Rate) was the rate at which banks were willing to borrow funds.

Both rates were important in global finance, especially LIBOR. They served as benchmarks for many financial instruments, such 💃as short-term interest futures contracts, forward rate agreements, interest rate swaps, and currency options.

LIBOR had a particularly pivotal role in the eurodollar market and served as the basis for pricing retail products, such as mortgages, student loans, and credit cards, playing a critical role in the financial 🦂markets for decades.

However, it was officially phased out on June 30, 2023. The move away from LIBOR was a result of concerns over its reliability, transparency, and vulnerability to manipulation. Similarly, LIBID was also phased out as it was also seen as unreliable. Its usage had been declining long before its official cessation.

Since LIBOR's closure, financial institutions have transitioned to various other rates, such as the Secured Overnight Financing Rate (SOFR) in the U.S. and the Sterling Overnight Index Average (SONIA) in the U.K.

LIBID

The 澳洲幸运5开奖号码历史查询:London Interbank Bid Rate (LIBID) was the rate that banks were willing to pay for 澳洲幸运5开奖号码历史查询:eurocurrency deposits and other bank funds in the London interbank market. Eurocurrency deposits are funds held in bank🏅s outside the country of the currency's origin. For example, U.S. dollars held in a bank outside the U.S. would🍌 be considered eurodollars.

LIBID was generally set lower than LIBOR and represented the "bid" side of the interbank market. While some financial institutions used LIBID, it was not nearly as widely followed or governed as LIBOR.

Once LIBOR was being phased out, LIBID began to lose ground as well, primarily due to two reasons: (1) a decrease in the volume 🐻of interbank lending and borrowing, and (2) no formal methodology for it🐽s calculation.

LIBOR

The 澳洲幸运5开奖号码历史查询:London Interbank Offered Rate (LIBOR) was the interest rate at which international banks were willing to lend unsecured funds to one another for different maturities and in multiple currencies.෴ It was calculated daily for five currencies: the Swiss franc, the euro, the pound sterling, the ꦇU.S. dollar, and the Japanese yen, across seven maturities, from overnight to one year.

While LIBOR was widely used and important in financial markets, years of dec🎶🐻lining transaction volumes and manipulation scandals eventually led to its discontinuation.

Cessat𝕴ion of LIBOR and Transition to Alternat🃏ive Rates

LIBOR was phased out due to concerns over its reliabili⛎ty and vulnerability. It was based on daily estimates ꩵsubmitted by banks rather than actual lending transactions, making it vulnerable to manipulation.

This became a global problem in 2012 during the LIBOR scandal, when it was revealed that several banks submitted false rates to benefit their trading positions, greatly reducing trusඣt in the rate.

Furthermore, the underlying market that LIBOR was meant to reflect, unsecured interbank lending, had been shrinking since the 2008 financial crisi🌱s. With fewer actual transactions taking place, it became difficult for LIBOR to rely on actual rates and became more judgment-based.

Once it became evident that LIBOR was no longer accurate or trustworthy, regulators decided to൩ replace it with benchmarks that 💮were based on observable data, reducing the chances of manipulation.

The U.S. adopted the Secured Overnight Financing Rate (SOFR), which is calculated from overnight Treasury-backed repurchase agreements. In tജhe U.K., the Sterling Overnight Index Average (SONIA) replaced LIBOR.

These rates are considered to be more transparent, less prone to manipulation, and better reflections of the financial markets.

The Bottom Line

LIBID and LIBOR were important benchmark interest rates in the global financial markets, each serving its own purpo𒊎se. LIBOR was wi🌟dely used and impacted many short-term rates, such as mortgages and credit cards.

After years of credibility issues, LIBOR was fully phased out in 2023, with LIBID also being discontinued before LIBOR. Both rates have since been replaced with more trustworthy alternatives, such as SOFR and SONIA.