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A place for friends to gather and view stock market charts, discuss technical analysis and market outlook. What is your Principal Asset? How can it be developed? Each and all should do their own due dilligence and homework before investing. And by no means should you use anything I say or show here as a sole basis to buy or sell securities as everything is for educational experience only.

Friday, September 26, 2008

What is LIBOR?

So it's all about the banks......Check out the Reliabilty statement published on Wikipedia back in May as sourced from the Wall Street Journal.


Gleaned from Wikipedia.com:

The London Interbank Offered Rate (or LIBOR, pronounced /ˈlaɪbɔr/) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market). LIBOR will be slightly higher than the London Interbank Bid Rate (LIBID), the rate at which banks are prepared to accept deposits.


Reliability
On Thursday, May 29, 2008 the Wall Street Journal released a study suggesting that banks may have understated borrowing costs they reported for LIBOR during the 2008 credit crunch.[2] Such underreporting could have created an impression that banks could borrow from other banks more cheaply than they could in reality. It could also have made the banking system appear healthier than it was during the 2008 credit crunch.
For example, the study found that rates at which one major bank "said it could borrow dollars for three months were about 0.87 percentage point lower than the rate calculated using default-insurance data."
In response to the study released by the WSJ, the British Bankers' Association announced that LIBOR continues to be reliable even in times of financial crisis. According to the British Bankers' Association, other proxies for financial health such as the default credit insurance market, are not necessarily more sound than LIBOR at times of financial crisis.

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