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Clarification of the definition of BBA LIBOR in regard of government guarantee schemes

18 Dec 2008

The Foreign Exchange and Money Market Committee - the independent body that oversees all aspects of the calculation of BBA LIBOR - announces the following clarification to the definition of BBA LIBOR.

This clarification does not represent any a change to the definition of the benchmark or an alteration to the calculation methodology, it simply describes how the benchmark will account for government guarantees of money market instruments.

The BBA LIBOR definition is kept under constant review. New wording is underlined.

LIBOR is defined as:

“The rate at which an individual Contributor Panel bank could borrow funds, were it to do so by asking for and then accepting inter-bank offers in reasonable market size, just prior to 11.00 London time.”

This definition is amplified as follows:-

  • The rate at which each bank submits must be formed from that bank’s perception of its cost of unsecured funds in the interbank market.  This will be based on the cost of funds not covered by any governmental guarantee scheme.  
  • Contributions must represent rates formed in London and not elsewhere.
  • Contributions must be for the currency concerned, not the cost of producing one currency by borrowing in another currency and accessing the required currency via the foreign exchange markets.
  • The rates must be submitted by members of staff at a bank with primary responsibility for management of a bank’s cash, rather than a bank’s derivative book.
  • The definition of “funds” is: unsecured interbank cash or cash raised through primary issuance of interbank Certificates of Deposit.
 
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