Question

How big of LIBOR using in banking system?/How much percentage of LIBOR using in banking system? Why LIBOR has the biggest effect in banking industry?

Answer 1

The London Inter-bank Offered Rate (LIBOR) is an inter-bank lending rate to find out how much a particular bank would be charged for borrowing short-term loans from other global banks. It is an important benchmark in the global lending market and is widely used by the biggest banks in the world including Bank of America, Bank of Canada, HSBC, Deutsche Bank, etc. In 2008, as many as 60% prime mortgages and all sub-prime mortgages were indexed to LIBOR. About 75% of the money for American municipalities was borrowed using products linked to LIBOR. About 78% of the banking industry uses LIBOR to get interest rates.

LIBOR has a huge effect on the banking industry and is used so widely because it is the most valued interest rate in the world. The lowest and best borrowing rate is represented by LIBOR which favors companies. It is the most reliable tool to get an idea about the expectation of interest rates. It is also widely used because it calculates interest rates in 5 different currencies such as US dollar, Euro, British pound, Japanese Yen and Swiss franc, which helps in including a variety of countries to use this tool.