Historical Perspective

At the beginning of the 1980s it became apparent that an increasing number of banks in the London market were actively trading new instruments such as Forward Rate Agreements.  At the same time London was emerging as a centre for loan syndication.  While many banks considered these new instruments as attractive, they were also inhibited by the nature of the underlying rates that had to be agreed before a bank could enter into a contract.

The BBA was asked by the banks it represents to bring in a measure of uniformity into the market and to produce a benchmark to act as a reference for these new instruments.  The idea was that rather than negotiating the underlying rate or forming rates by taking averages of ad-hoc panels, banks could now use a standard rate. This facilitated the markets and made benchmarking more transparent and objective.

In October 1984 the BBA working with other parties such as the Bank of England established various working parties, which eventually culminated in the production of the BBAIRS terms - the BBA standard for Interest Swap rates.

Part of this standard included the fixing of BBA Interest Settlement rates, the predecessor of bbalibor. From the 2nd September 1985 the BBAIRS terms became standard market practice. This led to the first bbalibor rates which were published in January 1986, initially in 3 currencies: US Dollars, Japanese Yen and Sterling.  The range of calculations has grown and bbalibor is now calculated in 10 currencies, with fifteen maturities for each.

The design of bbalibor has seen one significant change since its inception. In 1998 it was agreed to change the question from At what rate do you think interbank term deposits will be offered by one prime bank to another prime bank for a reasonable market size today at 11am?.

The new question, that is still used today is At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am?. This was decided by the FX & MM Committee after considerable consultation with the markets as they no longer felt that a universal definition of a prime bank could be given.  It also has the advantage of linking the figures submitted by banks to their own activity, rather than a hypothetical entity, paving the way for improved governance of the data.