LIBID vs. LIBOR: An Overview
Both LIBID and LIBOR are reference rates set by banks in the London interbank market, which is a place where banks exchange currencies either directly or through electronic trading platforms. While LIBOR is the rate at which funds are sold in the London interbank market, LIBID is the rate at which funds are purchased in the market. As of December 2020, plans were in place to phase out the LIBOR system by 2023 and replace it with other benchmarks, such as the Sterling Overnight Index Average (SONIA).
- Both LIBID and LIBOR reflect short-term rates in the London interbank market and are calculated daily.
- LIBID is the London Interbank Bid Rate, which is the "bid" rate at which banks are willing to borrow eurocurrency deposits.
- LIBOR is the "offer" rate at which banks are willing to lend to each other and more widely followed than LIBID.
- As of December 2020, plans were in place to phase out the LIBOR system by 2023 and replace it with other benchmarks, such as the Sterling Overnight Index Average (SONIA).
- LIBOR is administered by the Intercontinental Exchange, which asks major global banks how much they would charge other banks for short-term loans.
Both LIBID and LIBOR rates (especially LIBOR) are among 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.
LIBOR and LIBID are both calculated and published daily. However, LIBID has no formal correspondent responsible for fixing it, but LIBOR is set and published daily around 6:45 a.m. ET (11:45 a.m. in London) by the ICE Benchmark Administration (IBA).
Lastly, London Interbank Mean Rate (LIMEAN) is the calculated average of 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.
The acronym LIBID stands for London Interbank Bid Rate. It is the rate that banks are willing to pay for eurocurrency deposits and other bank 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 and can 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 different LIBOR rates that are released to the market every day.