LIBOR

London Interbank Offered Rate, or LIBOR, is the rate that international banks charge each other for short-term loans. LIBOR is calculated every business day in 10 different currencies and on15 terms, ranging from overnight to one year.

In a normal economic climate, LIBOR is about one half of a percentage point above comparable yields on U.S. Treasury bills—yields that tended to be influenced primarily by the benchmark rate set by the Federal Reserve for overnight loans between banks, also known as the Federal Funds rate.

(SeeFederal Funds Rate)

But during the financial crisis and credit crunch, as banks have become skittish about lending to each other, it has caused Libor to surge. For example, a recent  three-month U.S. dollar LIBOR rate was 4.32 percent, while on the same day the yield on three-month Treasury bills was only 0.89 percent.