There’s Alot In The News About LIBOR, But What Is It?

29/06/2012

LIBOR, has until now, been one of those jargon terms rarely heard outside the Financial Services industry. Today, I suspect will be a different matter and I’m sure you will hear it in high street coffee shops, taxis and outside school gates up and down the land, But what does it mean and more importantly, how will it affect you?

LIBOR – London Interbank Offered Rate. It is the presumed rate at which banks lend money to each other. Each day between 11 a.m. and 11.15, sixteen banks submit their cost of lending to each other to the British Banker’s Association. They then top and tail the data, getting rid of rates that appear too low or too high and then take an average of the remaining rates.  The global banking network then uses this rate to help run interbank lending around the world.

So what does it mean to us? Arguably, the rate at which banks lend to each other has very little, if any, impact on personal borrowing or savings rates. These are largely affected by other forces. The size of the fines levied on Barclays (close to £300 million) are large enough to be felt by the bank and they have definitely helped bring this problem to the top of the news agenda, but again, that may not have much bearing on our private day to day financial dealings.

The real issue lies in the possibility that other banks have been involved in rigging LIBOR. E mails are being quoted showing that traders have been calling in favours with counterparts in other banks, openly asking them to state incorrect rates, no doubt to somebody’s advantage. And this is where the problem lies.

From the private individual’s perspective, this issue is all about trust and unfortunately Barclays won’t be the last bank embroiled in this affair.

If you have any concerns over the above or you just want re-assurance on your financial affairs please contact us >>

 

Written by Sam Gulley | Financial Planning Consultant

Sam joined Mantle Financial Planning in 2009 having previously been with Alexander Forbes and HSBC bank. Read more >>

Posts by (33)

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Contact the Team

Call 020 8394 0954    Email

Where We Are

Stoneleigh Office: 77-79 Stoneleigh Broadway, Epsom, Surrey KT17 2HP

Whitton Office: 115b, High Street, Whitton, Twickenham TW2 7LG

Opening Hours

Mon - Fri  9am - 5.30pm