LIBOR – and its equivalents in some other currencies, collectively known as “IBORs” (interbank offered rates) – is used to determine the floating rate paid on over $ trillion dollars of interest rate derivatives contracts, as well as many trillions in floating-rate loans and securities.
LIBOR is calculated based on submissions from a panel of banks: each bank is responsible for estimating the cost at which it could borrow in the unsecured interbank market from other banks, at various maturities and in various currencies. LIBOR is calculated as an average of these estimates, after dropping the highest and lowest figures.