What is the Bank Bill Swap Rate (BBSW)
The Bank Bill Swap Rate (BBSW), or Bank Bill Swap Reference Rate, is a short-term interest rate used as a benchmark for the pricing of Australian dollar derivatives and securities, most notably floating rate bonds. It is similar in function to LIBOR and other short-term benchmarks as an interbank borrowing rate.
BREAKING DOWN Bank Bill Swap Rate (BBSW)
The BBSW was formerly published by the Australian Financial Markets Association (AFMA) through year-end 2016. Currently, the Australian Securities Exchange (ASX) calculates and maintains this rate.
The bank bill swap rate is Australia's equivalent of LIBOR or SIBOR and is used as a reference rate in much the same way on an institutional level. For instance, a variable floating rate may quote 100 basis points over LIBOR, whereas in Australia they may use 100 basis points over the BBSW.
According to the ASX, the BBSW is not as directly linked to the mortgage or other retail lending indexes as is the LIBOR and other similar benchmarks. Therefore, its impact in these areas is minimal and limited to its general effects on interest rate levels.
Prime Banks and Prime Bank Eligible Securities
A prime bank is one of several approved financial institutions and includes Australia's four largest banks. The ASX reviews the members of this group annually. Membership requirements, as listed on the ASX, include:
- Being an authorized deposit-taking institution (ADI) as defined by the Australian Prudential Regulation Authority (APRA)
- Satisfying a credit rating benchmark, specifically Standard & Poor’s short-term rating of A1+ and long-term rating for the senior unsecured debt of at least AA
- Having securities eligible for use in by the Reserve Bank of Australia (RBA) in open market operations and standing liquidity facilities
that broke in 2012. The 2012 scandal involved banks falsely inflating or deflating their rates for profit or to give false impressions of their financial health. The banks contributing to the calculation of BBSW submit the actual bids and offers they use to transact real business with other banks.