LIBOR Curve

The LIBOR curve is a curve (on a graph) that shows seven maturities (different timespans) of London’s short-term, large-bank-to-large-bank floating rate, called LIBOR.

LIBOR, the London Interbank Offered Rate, is not only a big deal in England, but also for Europe and International markets. LIBOR is the most commonly cited benchmark for short-term interest rates anywhere; it’s what the world’s biggest banks use to charge each other for short-term loans.

When LIBOR is high, it’s more expensive for big banks to lend money to other big banks, which makes things more expensive for everyone, and dampers the investing spirit. When LIBOR is low, investing and spending are likely to be higher.

LIBOR is kind of the London version of the Fed Funds rate, except that the Federal Reserve (the central bank in the U.S.) sets the federal funds rate, while LIBOR is a result of supply and demand of funds. Gotta love equilibriums. Still, the LIBOR curve might not be around for long. There’s talk of getting rid of the LIBOR system, since it was used and abused as part of the 2008 financial crisis.