Libor rate jumps again as banking group accelerates review

Apr.19, 2008 in Market Outlook

Libor jumps anew; bank group accelerates review

By Alistair Barr & Lisa Twaronite, MarketWatch

Last Update: 5:22 PM ET Apr 18, 2008

SAN FRANCISCO (MarketWatch) — A closely watched measure of global borrowing
costs surged again Friday, reflecting continued concerns about the accuracy of
the London interbank offered rate, or Libor.

Three-month Libor in U.S. dollars jumped nine basis points to 2.9075%, according
to British Bankers’ Association data and FactSet Research.

It was the biggest increase since the credit crunch hit in August. The rate
climbed by 8 basis points Thursday. See full story.

Libor measures the interest rate at which banks are willing to lend to each
other.

It’s been estimated that loans and derivative contracts totaling roughly $150
trillion — more than $20,000 for every person on Earth — are indexed or tied to
Libor in some way. As a result, big changes in the rate have major implications
for the cost of borrowing.

Libor usually moves closely with interest rates set by major central banks, such
as the U.S. Federal Reserve and the Bank of England.

But since August, the spread, tracking the difference between Libor and other
official interest rates has grown, as banks have hoarded cash and become
reluctant to lend.

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