It would be the start of the Interbank Offered Rates (IBOR) era. Now, 50 years later, after trillions of euros and dollars in financial contracts and with fines running in the billions, the era is coming to an end and replacement rates are approaching. This will pose a major challenge for asset managers, banks, insurers and pension funds.
Many people working in the financial industry are familiar with IBORs such as London Interbank Offered Rate (LIBOR) or its euro equivalent Euro Interbank Offered Rate (EURIBOR) in their day-to-day work. However, only a handful know the history behind this concept that can arguably be dubbed as one of the most important numbers in the world. The Greek banker in question was Minos Zombanakis and he was tasked to come up with a syndicated loan structure referencing a variable interest rate that reflected the participating banks’ loan conditions. The participating banks would provide rates at which they could borrow (offered rates) that would be averaged after minor adjustments. This simple concept still remains at the heart of IBORs to this day. Each day, the following question is asked to a set of panel banks:
"At what rate could you borrow funds, were you to do so by asking for and then accepting interbank offers in a reasonable market size just prior to 11 am?”
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