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Interbank rate

Interbank rate Definition

Interbank Rate or London Inter-Bank Offer Rate (LIBOR). The interest rate that the banks charge each other for loans (usually in Eurodollars). This rate is applicable to the short-term international interbank market, and applies to very large loans borrowed for anywhere from one day to five years. Banks short on liquidity can borrow quickly from other banks, enabling them to avoid holding excessively large amounts of their asset base as liquid assets. The LIBOR is officially fixed once a day by a small group of large London banks, but the rate changes throughout the day.

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