Even though the scandal involving London-based Barclays and rate rigging is expected to widen, LIBOR is so ingrained in the financial system that there is little threat to its status as a global interest rate benchmark, according to a new report from Charlottesville,Va.-based SNL Financial.
The British Bankers' Association's London Interbank Offered Rate, or LIBOR, is the average interest rate at which leading banks borrow funds from other banks in the London market. LIBOR is the primary benchmark for short-term interest rates globally and is used as the basis for settlement of interest rate contracts on many of the world's major futures and options exchanges.
The BBA arrives at LIBOR by asking a panel of contributor banks to submit the rate at which they could borrow funds from other banks, according to SNL.
According to SNL, the BBA is also conducting a review of the way LIBOR is set and will publish its findings shortly. And while LIBOR is not likely going away, according to SNL the scandal will likely prompt changes in the way the interest rate is set.