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LIBOR Rate History

Historical LIBOR Rates Compared to the Fed Funds Rate


LIBOR Rate History

Wall Street (Credit: Spencer Platt/Getty Images)

Updated May 31, 2014
The history of the LIBOR rate is pretty calm. That's good, because it's the interest rate banks charge each other for short term loans. LIBOR is usually a few tenths of a point above the Fed funds rate. In fact, LIBOR is short for London InterBank Offered Rate. It's set by London banks, who then publish it as a benchmark for global bank rates. It also signaled the financial crisis of 2008.

The first sign was in April 2008, when the 3-month LIBOR rose to 2.9% even as the Federal Reserve lowered the Fed funds rate to 2%. This was after the Fed had already aggressively dropped the rate six times in the previous seven months. (For details, see Current Fed Funds Rate.

Why did LIBOR suddenly diverge from the Fed's interest rate target? Banks started to panic when the Fed had to bail out Bear Stearns, which was going bankrupt due to investments in subprime mortgages. Throughout the spring and summer, bankers became more hesitant to lend to each other, reacting to fears they would inherit each others' subprime mortgages as collateral or would not get paid back on their loans. LIBOR rose steadily to indicate the higher cost of borrowing. On October 8, 2008, the Fed dropped the Fed Funds rate to 1.5%, but LIBOR continued rising to a high of 4.8% on October 13. In response, the Dow dropped 14% in October. Since then, LIBOR has steadily declined to more closely match the Fed funds rate. (Source: St. Louis Federal Reserve, Historical 3-Month LIBOR Rate; New York Federal Reserve, Historical Fed Funds Rate)

What Are the Historical LIBOR Interest Rates

The table below shows a snapshot of the historical LIBOR rates compared to the Fed funds rate for each year (as of December 31) since 1986. Pay particular attention to the LIBOR rates during 2006-2009, when it is compared to each change in the Fed Funds rate. It shows how LIBOR diverged slightly in the fall of 2007, and then really diverged in the spring of 2008. It returned to more normal levels by the end of 2009 in response to Federal Reserve measures to restore liquidity.

From 2010 - 2013, the Fed kept interest rates low with quantitative easing by buying U.S. Treasury notes and mortgage-backed securities. In the summer of 2011, the Fed announced Operation Twist, another form of quantitative easing. Despite this easing, the LIBOR rate rose in late 2011 as investors grew concerned about potential debt defaults from Greece and other contributors to the eurozone debt crisis.

Early History of LIBOR

In the early 1980s, banks and hedge funds began trading more and more options based on loans. They needed a standard method to determine what a bank would charge for a loan in the future. These derivatives promised higher returns for the banks, but they were difficult to negotiate the contract until both parties agreed on what the interest rate would be.

That's when the British Banking Association stepped in. In 1984, it created a panel of banks that it would poll on what interest rate they would charge for various loan lengths and various currencies. This poll would be used by all banks to price derivatives. In fact, the actual question posed was: "At what rate do you think interbank term deposits will be offered by one prime bank to another prime bank for a reasonable market size today at 11am?"

On September 2, 1985, the BBA published the predecessor to LIBOR. The BBAIRS was the Interest Settlement rate. The first LIBOR rate was published in January 1986, in three currencies: the U.S. dollar, the British sterling and the Japanese Yen. Today, the LIBOR rate is given for ten currencies, in fifteen maturities ranging from overnight to 12-month loans.

In addition, BBA has changed the question asked of the panel of banks, in response to the realities of the financial crisis of 2008. Banks are now asked: "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 am?" BBA changed the question because it is more realistic and gives better results to ask a bank what it could actually do, rather than a hypothetical question. (Source: BBA, Historical Perspective)

3-Month LIBOR Compared to Fed Funds Rate Chart

DateFed Funds Rate3-Month LIBOR Rate
Dec 31 19866.006.43750
Dec 31 19876.887.43750
Dec 30 19889.759.31250
Dec 29 19898.258.37500
Dec 31 19907.007.57813
Dec 31 19914.004.25000
Dec 31 19923.003.43750
Dec 31 19933.003.37500
Dec 30 19945.506.50000
Dec 29 19955.505.62500
Dec 31 19965.255.56250
Dec 31 19975.505.81250
Dec 31 19984.755.06563
Dec 31 19995.506.00375
Dec 29 20006.506.39875
Dec 31 20011.751.88125
Dec 31 20021.251.38000
Dec 31 20031.001.15188
Dec 31 20042.252.56438
Dec 30 20054.254.53625
Jan 31 20064.504.68000
Mar 28 20064.754.96000
May 10 20065.005.16438
Jun 29 20065.255.50813
Sep 18 20074.755.58750
Oct 31 20074.504.89375
Dec 11 20074.255.11125
Jan 22 20083.503.71750
Jan 30 20083.003.23938
Mar 18 20082.252.54188
Apr 30 20082.002.85000
Oct 8 20081.504.52375
Oct 29 20081.003.42000
Dec 16 200802.18563
Mar 31 200901.19188
Jun 17 20090.61000
Dec 18 20090.25125
Dec 31 20100.30281
Dec 31 20110.58100
Dec 31 20120.30600
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