London Interbank Bid Rate (LIBID)

What Is the London Interbank Bid Rate (LIBID)?

The London Interbank Bid Rate (LIBID) is the average interest rate at which major London banks bid for eurocurrency deposits from different banks in the interbank market. The bid rate banks will pay for eurocurrency deposits and other banks' unsecured funds in the London interbank market, while the more well known LIBOR is the offered rate.

Eurocurrency deposits allude to money as bank deposits of a currency outside that currency's responsible country. They might be of any currency in any country.

Because of the LIBOR get rid of following recent rate fixing scandals, LIBID will likewise be phased out beginning in 2021.

What Does the London Interbank Bid Rate (LIBID) Tell You?

The London Interbank Bid Rate (LIBID) is the opposite side of the more well known London Interbank Offered Rate (LIBOR). Though LIBOR is the "ask" rate at which a bank will loan eurocurrency deposits to another bank, LIBID is the "bid" rate at which banks will borrow.

The difference between the two is the bid-ask spread on these transactions. At the point when LIBID is high, it means that borrowers are seeking to borrow funds with expanding demand.

While LIBOR is a well known benchmark interest rate that is calculated and distributed by Intercontinental Exchange (ICE), LIBID isn't normalized or publicly accessible. It isn't utilized outside of the interbank lending market. The most common currency deposited as eurocurrency is the [U.S. dollar](/usd-US dollar). For instance, if U.S. dollars are deposited in any bank outside the U. — for instance, in Europe or the U.K. — then the deposit is alluded to as an eurocurrency (eurodollars in this case).

The Difference Between LIBID and LIBOR

Both LIBID and LIBOR are reference rates set by banks in the London interbank market. The London interbank market is a wholesale money market in London where banks exchange currencies either straightforwardly or through electronic trading platforms.

LIBOR is the benchmark rate for interbank lending and is calculated for seven maturities for five currencies: the Swiss franc, the euro, the pound sterling, the U.S. dollar, and the Japanese yen. There are really 35 rates that are delivered to the market consistently.

Due to recent embarrassments and inquiries around its legitimacy as a benchmark rate, LIBOR is being phased out. As per the Federal Reserve and regulators in the U.K., LIBOR will be phased out by June 30, 2023, and will be supplanted by the Secured Overnight Financing Rate (SOFR). As part of this stage out, LIBOR one-week and two-month USD LIBOR rates will presently not be distributed after December 31, 2021.

How the LIBID Rate Is Used

Both of these rates (particularly LIBOR) are viewed as the chief global reference rates for short-term interest rates of various global financial instruments, for example, short-term interest fates contracts, forward rate agreements, interest rate swaps, and currency options.

LIBOR is likewise a key driver in the eurodollar market and is the basis for retail products like mortgages and student loans. They are derived from a separated average of the world's most reliable banks' interbank bid/ask rates for institutional loans with maturities that reach among overnight and one year.

The London Interbank Mean Rate (LIMEAN) is the calculated average among LIBOR and LIBID and can be utilized to distinguish the spread between the two rates. LIMEAN is likewise utilized by institutions borrowing and lending money in the interbank market (as opposed to utilizing LIBOR or LIBID) and is a solid reference to the mid-market rate of the interbank market.

Highlights

• Both LIBOR and LIBID are being phased out beginning in 2021 due to recent fixing embarrassments.
• The most common currency deposited as eurocurrency is the U.S. dollar.
• The "offer" rate at which banks will loan to one another is the more famous LIBOR.
• LIBID is the London Interbank Bid Rate, the "bid" rate at which banks will borrow eurocurrency deposits.