LIBID vs. LIBOR: An Overview
Both LIBID and LIBOR are reference rates set by banks in the London interbank market. The London interbank market is a wholesale money market in London where banks exchange currencies either directly or through electronic trading platforms.
- LIBID is the London Interbank Bid Rate, the "bid" rate at which banks are willing to borrow eurocurrency deposits.
- The "offer" rate at which banks are willing to lend to each other is the more popular LIBOR.
- LIBOR is administered by the Intercontinental Exchange which asks major global banks how much they would charge other banks for short-term loans.
The acronym LIBID stands for London Interbank Bid Rate. It is the bid rate that banks are willing to pay for eurocurrency deposits and other banks' unsecured funds in the London interbank market. Eurocurrency deposits refer to money in the form of bank deposits of a currency outside that currency's issuing country. They may be of any currency in any country.
The most common currency deposited as eurocurrency is the U.S. dollar. For example, if U.S. dollars are deposited in any bank outside the United States—Europe, the United Kingdom, anywhere—then the deposit is referred to as a eurocurrency.
LIBOR (officially ICE LIBOR) stands for London Interbank Offered Rate. LIBOR is the interest rate at which banks can borrow money (unsecured funds) from other banks in the London interbank market for a specified period of time in a specified currency. The benchmark rate is calculated for seven maturities for five currencies: the Swiss franc, the euro, the pound sterling, the U.S. dollar, and the Japanese yen. There are actually 35 rates that are released to the market every day.
LIBOR and LIBID are both calculated and published daily. However, unlike LIBID, which has no formal correspondent responsible for fixing it, LIBOR is set and published daily around 6:45 a.m. EST (11:45 a.m. in London) by the ICE Benchmark Administration (IBA).
Both these rates (especially LIBOR) are considered the foremost global reference rates for short-term interest rates of a variety of global financial instruments such as short-term interest futures contracts, forward rate agreements, interest rate swaps, and currency options. LIBOR is also a key driver in the eurodollar market and is the basis for retail products like mortgages and student loans. They are derived from a filtered average of the world's most creditworthy banks' interbank bid/ask rates for institutional loans with maturities that range between overnight and one year.
The London Interbank Mean Rate (LIMEAN) is the calculated average between LIBOR and LIBID and can be used to identify the spread between the two rates. LIMEAN is also used by institutions borrowing and lending money in the interbank market (rather than using LIBOR or LIBID) and is a reliable reference to the mid-market rate of the interbank market.