LIBID

LIBID (London Interbank Bid Rate) was the interest rate at which banks were willing to accept deposits from other banks in the London interbank market—the "bid" side of the interbank lending transaction where LIBOR represented the "offer" side (BBA 2014)^[1]. When Bank A wanted to place excess funds with Bank B, LIBID was the rate Bank B would pay. When Bank A wanted to borrow from Bank B, LIBOR was the rate Bank A would pay. The spread between LIBID and LIBOR—typically 12.5 basis points—represented the interbank market's bid-ask spread.

Unlike LIBOR, LIBID was never officially fixed or published by the British Bankers' Association. It existed as a market convention, typically calculated by subtracting a fixed amount from LIBOR. With LIBOR's discontinuation following the rate-fixing scandals of the 2010s, LIBID similarly ceased to have relevance. Both rates have been replaced by alternative reference rates like SOFR in the United States.

Relationship to LIBOR

LIBID and LIBOR formed complementary sides of interbank transactions:

The interbank market

LIBOR (offer rate). The rate at which banks were willing to lend to other banks. A bank seeking to borrow would pay LIBOR.

LIBID (bid rate). The rate at which banks were willing to borrow from (or accept deposits from) other banks. A bank seeking to place funds would receive LIBID^[2].

LIMEAN. The midpoint between LIBID and LIBOR, sometimes used in contracts as a compromise rate.

Typical spread

Historical convention. LIBID was traditionally 1/8 of 1% (12.5 basis points) below LIBOR. A LIBOR rate of 5.00% implied LIBID of 4.875%.

Market conditions. Actual spreads varied with market liquidity and stress. During the 2008 financial crisis, interbank spreads widened dramatically as banks became reluctant to lend to each other.

Tightening over time. In liquid markets, bid-ask spreads tended to narrow. The traditional 12.5 basis point convention became less reliable in later years.

Market function

LIBID served specific purposes in financial markets:

Deposit placement

Excess liquidity. Banks with surplus funds could place them with other banks, earning LIBID. This was typically overnight or for short terms (one week, one month, three months).

Cash management. Treasury departments used interbank deposits to manage daily liquidity, placing excess funds at LIBID and borrowing shortfalls at LIBOR^[3].

Contract reference

Deposit agreements. Some deposit arrangements referenced LIBID rather than LIBOR, particularly where the depositor rather than borrower drove the transaction.

Interest rate swaps. Certain swap structures used LIBID as the floating rate, though LIBOR was far more common.

Documentation. ISDA master agreements and other standard documents sometimes referenced LIBID for specific purposes.

Distinction from LIBOR

Key differences between the rates:

Official status

LIBOR: Formally fixed. The British Bankers' Association (and later ICE Benchmark Administration) published official LIBOR fixings daily at 11:00 London time based on panel bank submissions.

LIBID: No official fixing. LIBID was never officially calculated or published. It existed only as a derived or indicative rate^[4].

Usage frequency

LIBOR: Ubiquitous. Trillions of dollars of contracts referenced LIBOR—mortgages, corporate loans, derivatives, securities.

LIBID: Limited use. Far fewer contracts referenced LIBID. Its primary use was in actual interbank transactions rather than as a benchmark for external contracts.

Regulatory attention

LIBOR: Heavily regulated. Following manipulation scandals, LIBOR became subject to extensive regulation and oversight.

LIBID: Minimal regulation. As an informal, derived rate, LIBID received little regulatory attention.

The LIBOR scandal and aftermath

Rate manipulation ultimately ended both benchmarks:

Manipulation discovery

Rate rigging. Beginning around 2012, evidence emerged that banks had manipulated LIBOR submissions—sometimes to benefit trading positions, sometimes to appear financially healthier during the crisis^[5].

Regulatory response. Investigations by UK, US, and European regulators resulted in billions of dollars in fines and criminal charges against traders.

Fundamental flaws. The scandal revealed that LIBOR was based on banks' estimates of borrowing costs, not actual transactions. This created manipulation opportunities.

Transition away from LIBOR

Alternative reference rates. Regulators promoted transaction-based alternatives. The US adopted SOFR (Secured Overnight Financing Rate). The UK adopted SONIA (Sterling Overnight Index Average).

LIBOR cessation. Most LIBOR currencies and tenors ceased publication by end of 2021. The final USD LIBOR tenors ceased on September 30, 2024.

LIBID discontinuation. With LIBOR's end, LIBID—being derived from LIBOR—similarly became obsolete. New reference rates don't have equivalent bid-offer structures^[6].

Replacement rates

Modern reference rates differ fundamentally:

SOFR (US)

Transaction-based. SOFR is calculated from actual overnight Treasury repo transactions—real trades, not estimates.

Secured rate. Unlike LIBOR's unsecured interbank rate, SOFR reflects secured borrowing collateralized by Treasury securities.

Single tenor. SOFR is inherently an overnight rate. Term SOFR derivatives and averages create longer tenors.

SONIA (UK)

Overnight rate. Sterling Overnight Index Average reflects actual overnight unsecured transactions in sterling.

Bank of England administration. Reformed and administered by the Bank of England.

Implications

No bid-offer structure. Alternative reference rates are single rates, not bid-offer pairs. The LIBOR-LIBID relationship has no equivalent^[7].

Credit spread absence. SOFR and SONIA don't include bank credit risk premiums that were implicit in LIBOR/LIBID. This creates basis differences when transitioning contracts.

Historical significance

LIBID's role in financial history:

Peak importance. During the heyday of London's interbank market (1980s-2000s), LIBID was integral to how banks managed liquidity.

Declining relevance. Even before LIBOR's scandal-driven demise, direct interbank lending declined. Central bank operations and secured lending increasingly replaced unsecured interbank transactions^[8].

Legacy contracts. Some contracts referencing LIBID required renegotiation or fallback provisions as the rate became unavailable.

LIBID — recommended articles

Interest rate — Banking — Financial markets — Monetary policy

References

• BBA (2014), BBA LIBOR Historical Data, British Bankers' Association (archived).
• ICE (2023), LIBOR Transition Information, Intercontinental Exchange.
• Bank of England (2023), SONIA Benchmark, Bank of England.
• Federal Reserve Bank of New York (2023), Secured Overnight Financing Rate Data, FRBNY.

Footnotes

1. ↑ BBA (2014), LIBOR Definition
2. ↑ ICE (2023), LIBOR Methodology
3. ↑ BBA (2014), Interbank Market Operations
4. ↑ ICE (2023), LIBOR vs. LIBID Distinctions
5. ↑ Bank of England (2023), LIBOR Reform Background
6. ↑ Federal Reserve Bank of New York (2023), SOFR Transition
7. ↑ Bank of England (2023), SONIA Benchmark Documentation
8. ↑ ICE (2023), LIBOR Transition Information

Author: Sławomir Wawak