IBORs

Interbank Offered Rates, or IBORs, are benchmark interest rates that reflect the estimated cost at which major banks could borrow funds from other banks on short notice in the interbank market. They are published for various currencies and maturities and have historically served as reference rates for a wide range of financial instruments, including loans, bonds, and derivatives.

IBORs are determined from submissions by a panel of banks in each currency and tenor. For each setting, participating banks provide the rate at which they believe they could borrow funds. The published rate is typically derived from these submissions using a trimmed mean or similar methodology, rather than directly from a single transaction. The resulting benchmarks are intended to capture a representative level of unsecured funding costs, though the exact calculation method can vary by administrator and currency.

In recent decades, reliance on IBORs has come under scrutiny due to concerns about robustness and potential manipulation. Regulators and market participants have undertaken reforms to shift reference rates toward more robust, transaction-based benchmarks, often known as risk-free rates (RFRs). Many IBORs are being phased out or replaced by alternative rates such as SOFR in the United States, SONIA in the United Kingdom, €STR in the euro area, and SARON in Switzerland. In Japan and other jurisdictions, reforms also aim to transition to more transparent rate mechanisms. Legacy contracts may continue to reference IBORs, with fallbacks or new terms to ensure continuity.