- The LIBOR first hit the lending market in 1986 in an attempt to bring more uniform lending to the British markets. As banking became more complicated with new and innovative financial products, interest rates had to be managed to control price gouging and unethical lending.
- Many adjustable-rate mortgages are tied to the LIBOR. An adjustable-rate loan has both a margin (a constant rate) and an index (a fluctuating rate). When calculating interest changes on mortgages, lenders add the margin to the current rate of the index. For example, if a customer has a margin of 3.5 percent and the LIBOR is currently 4.32 percent, the customer's new interest rate will be 7.82 percent.
- The LIBOR controls the ease with which banks can obtain new funds. In times of financial stress or crisis, the LIBOR increases, in turn decreasing lending between banks. Banks tend to hoard capital during down economies to protect their investments and ensure they can meet their own debt payments.
- The British Bankers Association sets the LIBOR rate on a daily basis, and it's then disseminated to financial reporting companies and publications. The British Bankers Association was the group responsible for creating the LIBOR rate in the 1980s in response to increasing pressure to standardize high-finance lending.
- The LIBOR is published every day in various locations. The Wall Street Journal--both online and in print--publishes the daily LIBOR. Other sources include Bloomberg news services, CNBC and most major newspapers.
