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Historical Perspective

At the beginning of the 1980s it became apparent that an increasing number of banks in the London market were actively trading new instruments such as Forward Rate Agreements, whilst at the same time London was also emerging as a centre for loan syndication.  Many banks considered these new instruments as attractive; however, they were inhibited by the nature of the underlying rates that had to be agreed before entering into a contract.

The BBA was asked by the banks it represents to bring a measure of uniformity into the market and to devise a benchmark to act as a reference for these new instruments. Rather than negotiating the underlying rate or forming rates by taking averages of ad-hoc panels, banks could now use a standard rate. This facilitated the operation of markets and made benchmarking more transparent and objective.

In October 1984 the BBA - working with other parties such as the Bank of England - established various working parties, which eventually culminated in the production of the BBAIRS terms - the BBA standard for Interest Swap rates.

Part of this standard included the setting of 'BBA Interest Settlement Rates' (BBAIRS), the predecessor of bbalibor. From the 2nd September 1985 use of the BBAIRS terms became standard market practice. This led to the first bbalibor rates which were published in January 1986, initially in 3 currencies: US Dollars, Japanese Yen and Sterling.  The range of calculations has since grown and bbalibor is now calculated in 10 currencies with fifteen maturities for each currency.

The design of bbalibor has seen one significant change since its inception. Up until 1998, banks submitted quotes to the BBA LIBOR process in line with the question: "At what rate do you think interbank term deposits will be offered by one prime bank to another prime bank for a reasonable market size today at 11am?"

During 1998 this question changed, and has up until today been: "At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am?"

This was decided after consultation with the markets and was implemented due to a view that a universal definition of a prime bank could no longer be given.  It also links the figures submitted by banks to their own market activity, rather than a hypothetical entity.

 
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