TIBOR

TIBOR
See also
Euro LIBOR Actuarial evaluation Blended Rate Cash Ratio Swap Ratio Bank examination Shadow Pricing Performance analysis Economic value of equity

TIBOR (Tokyo Interbank Offered Rate) is an equivalent of Euro LIBOR in Europe. It describe price of currency on interbank market. TIBOR has two types of rates:

• European TIBOR - based on Japan offshore market rates
• Japanese Yen TIBOR - based on unsecured call market rates

It is presented each day at 1pm Japan Standard Time by Japanese Bankers Association. TIBOR can be used as reference rate when banks lend money to companies or individuals.

European TIBOR

• European TIBOR also called ICE LIBOR or just LIBOR (in the past BBA LIBOR) is an average rate that is being used by banks to charge each other when granting the short-term loan and denominated to yen. It is administrated by ICE Benchmark Administration (IBA) and publish rates in five currencies (one of them is Japanese yen) and in few maturities: overnight, 1 week, 1, 2, 3, 6, 12 months. It is published on a daily basis, around 11:45 AM.
• In order to calculate the final LIBOR, so called “Panel banks” have to report their average interest rates to Reuters. The Panel banks are selected on a yearly basis by administrator - ICE Benchmark Administration (IBA) with the assistance of the Foreign Exchange and Money Markets Committee (FX&MMC). Each panel bank is being assessed and multiple different factors and indicators are taken into account, for example – reputation, volume or the knowledge.
• They deliver each maturity, even though they do not offer some maturity in that particular day. Then Thomson Reuters excludes the top 25% and the bottom 25% and calculate the average values from the rest of available values.
• Japanese yen LIBOR is being published since 1986 and currently is a base reference rate for multiple financial instruments, for example mortgage, loan, bonds, derivatives or saving account. According to global-rates.com, “LIBOR is viewed as the most important benchmark in the world for short-term interest rates”.

Japanese Yen TIBOR

• Japanese Yen TIBOR, also called the Euroyen TIBOR or JBA TIBOR, has been set by the Japanese Bankers Association (JBA). The rate is being published since 1995 and contributes to the Japan financial market.
• On 1st of April 2014, Ippan Shadan Hojin, which is the JBA TIBOR administrator, established the JBATA. The main responsibilities of this new institution are to manage, maintain, calculate, and most of all to publish the current rates. The rates are being published by designated and authorized information providers only. Everyone who want to use the rate is asked to ensure that refers to the recognized rates.
• It's worth to mention, that even though the administrator has been changed, the methodology of the calculations didn't change. According to the official source of information, the TIBOR rate is being calculated “as a prevailing market rate, based on quotes for 6 different maturities (1 week, 1month, 2month, 3month, 6month, 12 months) provided by reference banks as of 11:00 a.m. each business day”. Important might be also that, not all rates are taken into account, the top and the bottom two rates are being threw out, so the methodology resemble the harmonic average. Prior to the publication, JBATA awaits, by 11:35 AM, the data from at least eight banks. JBATA also tries to constantly improve the credibility of TIBOR as a benchmark, so that they do the periodical review of he definition or the calculation methodology. In emergency situation, JBATA can publish the rates from the previous day, which are considered as the effectual. JBATA also reserve the right to suspend the data publishing in case of changes in the unsecured market in Japan or offshore ones.
• From the technical perspective, some of the administration tasks are outsourced to SoftBank Corp.
• JBA TIBOR is essential for the Japanese Ministry of Finance. This government agency uses the rate to provide the wilder analysis.

References

• JBA TIBOR on JBA website
• Lim, L. K. (2005). A dollar or yen currency union in East Asia. Mathematics and computers in simulation, 68(5-6), 507-516.
• Taylor, J., Williams, J. (2008) A black swan in the money market NBER Working paper series
• TIBOR rates on JBA website
• (2018) JPY LIBOR interest rate - Japanese yen LIBOR Global-rates.com
• (2018) LIBOR, information about the London InterBank Offered Rate Global-rates.com

Author: Magdalena Rewers