What is full form of LIBOR ? What is full form of MIBOR ?

The full form of LIBOR is London Inter Bank Offered Rate.

The full form of MIBOR is

Mumbai Inter Bank Offered Rate.

LIBOR is used for which currencies ? For Which currency is MIBOR used ? What are the
maturities / periods for which LIBOR and MIBOR are quoted on regular basis ?

Originally, in 1986 LIBOR was published for three currencies ie USD, GBP and JPY. Later on other
currencies were added and after merger of some currencies in 2000 into Euro, now Libor rates are
calculated for 10 currencies and 15 borrowing periods ranging from overnight to one year. These
are published daily at 11:30 am (London time).

LIBOR is calculated and published by

Thomas Reuters on behalf of British Bankers' Association (BBA) for currencies like (1)
US Dollar, (2) GB Pound (GBP), (3) Euro (EUR), (4) Swiss Franc (CHF), (5) Canadian
dollar (CAD), (6)Japanese Yen (JPY), (7) Danish Krone (DKK), (8) Swedish Korna
(SEK), (9) Australian Dollar (AUD), (10) New Zealand Dollar (NZD).
benchmark for overnight interet rates for Indian Rupee (INR).

MIBOR is the

[In view of LIBOR

scandel (see last question at the end of this article), now an independent authority is being
mooted, which is likely to start working in 2013 itself.]
The rates are published for period ranging from 1 day to 12 months (i.e. 1 day, 1 week, 2
weeks, 1 month, 2 month ...... upto 12 months at monthly intervals)

Define LIBOR and MIBOR ?How are LIBOR and MIBOR arrived at ?

The interbank borrowing is undertaken by financial institutions either to make profits or to cover
short-term liquidity shortfalls

Thus, we

can define LIBOR as the average interest rate

estimated by leading banks in London that they would be paying if they borrow from other

banks. LIBOR is arrived at each day by BBA through a survey from 18 major global
banks for the USD by asking the question "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 11.00 AM (London local time). Then BBA excludes the highest 4 and lowest 4
responses, and averages the remaining 10 responses. This average rate is published at
11.30 AM. As we have made it clear it is declared for 15 different maturities i.e. 1 day
(overnight) to 1 year. Thus, we can say that LIBOR is a set of indexes.

MIBOR is the interest rate at which banks can borrow funds, in marketable size, from
other banks in the Indian interbank market. MIBOR is calculated everyday by the
National Stock Exchange of India (NSEIL) as a weighted average of lending rates of a
group of banks, on funds lent to first-class borrowers. The MIBOR was launched on June
15, 1998 by the Committee for the Development of the Debt Market, as an overnight rate.
The NSEIL launched the 14-day MIBOR on November 10, 1998, and the one month and
three month MIBORs on December 1, 1998. Further, the exchange introduced a 3 Day
FIMMDA-NSE MIBID-MIBOR on all Fridays with effect from June 6, 2008 in addition to
existing overnight rate. Thus, we can say that MIBOR is is arrived now a days by
FIMMDA and NSE, based on inputs from PS Banks, Private Sector Banks, Primary
Dealers and Foreign Banks An example of the MIBOR rates is

FIMMDA-NSE MIBOR for the Day

A
Category

Time
OVERNIGHT

9:40 a.m.

3 DAY

9:40 a.m.

14 DAY

11:30 a.m.

1 MONTH

11:30 a.m.

3 MONTH

11:30 a.m.

Fixed Income Money Market and Derivative Association of India (FIMMDA) has been in the forefront for
creation of benchmarks that can be used by the market participants to bring uniformity in the market
place. To take the process of development further, FIMMDA and NSEIL have taken the initiative to cobrand the dissemination of reference rates for the Overnight Call and Term Money Market using the
current methodology behind NSE MIBID/MIBOR. The product was rechristened as 'FIMMDA-NSE
MIBID/MIBOR'. The 'FIMMDA-NSE MIBID/MIBOR' is now jointly disseminated by FIMMDA as well as
NSEIL

What is the importance of LIBOR and MIBOR ?

The Libor is widely used as a reference rate / bench mark for many financial instruments in both
financial markets and commercial fields. In 2012, it was estimated that at least US$ 350 trillion in
derivatives and other financial products were tied to the LIBOR. Thus, for banks and other
financial institutions, huge number of transactions are valued based on the current trend of
LIBOR.

The MIBOR (alongwith MIBID) rate is used as a bench mark rate for majority of deals struck for
Interest Rate Swaps, Forward Rate Agreements, Floating Rate Debentures and Term Deposits in
Indian markets.

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What are other indexes for money market / term deposits in the interbank dealings popular
in the world financial markets:Besides, LIBOR and MIBOR, some other interbank offered rates popular are : SIBOR
(Singapore); HIBOR (Hong Kong)

Can you name few products that are poular linked to LIBOR ?
Some products which are linked / bench marked / reference rated to LIBOR include,
Forward Rate Agreements, Interest Rate Futures, Interest Rate Swaps, Swaptions,
Overnight Index Swaps, Interest Rate Options, Floting Rate Notes, Range Accrual Notes.

What is LIBOR Scandal all about ?

We have seen above that LIBOR is the average rate (declared on daily basis) and is
calculated based on the rates submitted by major international banks in London. We have
also seen that huge amount of transactions / deals, specially derivative deals, are
benchmarked or have reference to LIBOR.

Thus, the daily mark to market valuation of

such deals depends on the LIBOR and even settlement among banks / government is done
by banks based on LIBOR. In case LIBOR is manipulated, it will impact the valuation /
settlement amount of huge volume of transactions across the world as LIBOR is widely
used.
On 16th April, 2008, The Wall Stree Journal published an article which suggested that
some banks seems to have understated their borrowing costs they reported for the LIBOR
during 2008 credit crunch and this might have misled others about the financial position of
these banks. However, at that time, it was contradicted by banks and thus a lid was placed
on this issue. Later on a study by Srider and Youle in April 2010, once again came to light
which corroborated the results of the earlier Wall Street Journal Study. However, there
was one difference that this study gave different reasons for this manipulation by banks.
These two economists suggested that the reason for understatement by member banks was
not that the banks were trying to appear strong, especially during the financial crisis of
2007 and 2008, but rather they did it to make substantial profits on their large LIBOR

inter linked portfolios.

Even a change of quarter percent would change valuation / profit

of one bank to be tune of US$ 1000 million as banks had built huge derivative books.
Based on these, criminal investigations were started since 2011 and details started tumbling
in 2012. In February 2012, it was reported that US Department of Justice was conducting
a criminal investigation into LIBOR abuse. It came to light that traders were in direct
communication with bankers before the rates were set, thus allowing them an
unprecedented amount of insider knowledge into global instruments. One of the traders
from Royal Bank of Scotland agreed that it was common practice among senior employees
at his bank to make requestes to the bank' s rate setters as to the appropriate LIBOR
rate.

The magnitude of small tinkering can be seen from the message sent by a trader

from Barclays Bank that for each basis point (0.01%), the involved could net "about a
couple of million dollars"!. Similarly, some investigations started in Canada and UK too
in 2011 and 2012.
On 27th June 2012, Barclays admitted to misconduct and thus UK's FSA imposed a 59.5
million pound penalty. US Department of Justice and Commidity Futures Trading
Commisison too imposed fines worth 102 and 128 million pound penalties . Thus Barclays
paid total of about 290 million pound as penalty.
On 31st July, 2012, Deutsche Bank confirmed that a "limited number" of staff were
involved in the LIBOR rate rigging scandel, but it cleared the senior management of the
charges.
On 19 December 2012, UBS agreed to pay regulators $1.5bn ($1.2bn to the US Department
of Justice and the Commodity Futures Trading Commission, 160m to the UK Financial
Services Authority and 60m CHF to the Swiss Financial Market Supervisory Authority) for
its role in the scandal.

Early estimates are that the rate manipulation scandal cost U.S. states, counties, and local
governments at least $6 billion in fraudulent interest payments, above $4 billion that state and
local governments have already had to spend to unwind their positions exposed to rate
manipulation.

The British Bankers Association said on 25 September that it would transfer oversight of
Libor to UK regulators, as proposed by Financial Services Authority Managing Director
Martin Wheatley and CEO-designate of the new Financial Conduct Authority. On 28
September, Wheatley's independent review was published, recommending that an
independent organization with government and regulator representation, called the Tender
Committee, manage the process of setting Libor under a new external oversight process for
transparency and accountability

The FSA announced final proposals for new regulations on how financial market benchmarks
are calculated, tightening requirements that information be more transparent.

Investigations and follow up is still going on, and more may come out in the coming months.

(Last updated on 26/3/2013)