LIBOR
London Interbank Offered Rate — the former benchmark interest rate at which major global banks lent to each other, replaced by SOFR after a manipulation scandal.
Example
“LIBOR was phased out in 2023 after banks were found to have manipulated submissions during the 2008 financial crisis.”
Memory Tip
LIBOR = the old benchmark rate. Replaced by SOFR after manipulation scandals. Historical term.
Why It Matters
LIBOR was the foundation for pricing trillions of dollars in financial products including mortgages, student loans, and adjustable-rate accounts. Understanding what benchmark rates are used matters because they directly affect the interest rates you pay or receive on variable-rate loans and savings products.
Common Misconception
Many people think LIBOR was a fixed rate set by a central authority, but it was actually calculated daily based on submissions from major banks about their lending costs. This self-reported nature made it vulnerable to manipulation, which is why regulators ultimately replaced it with SOFR, a rate based on actual transaction data.
In Practice
A borrower with an adjustable-rate mortgage might have had their rate set at LIBOR plus 2 percent, meaning if LIBOR was 1 percent, they would pay 3 percent interest. When LIBOR spiked during financial crises, these borrowers saw their monthly payments jump significantly, which is why switching to SOFR helps create more stable and trustworthy rates for consumers.
Etymology
Acronym for London Interbank Offered Rate. The rate OFFERED by London banks for interbank lending.
Common Misspellings
Track markets & get real-time stock data
Related Terms
More in markets
Other markets terms you should know
See Also
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.