How LIBOR is Currently Calculated?
Each day, 18 banks around the world each submit a figure to the Intercontinental Exchange Benchmark Administration (IBA) based on the rate at which they estimate they could borrow funds from other banks.
IBA throws out the highest and lowest 25% of submissions, and averages the remaining rates. This is the LIBOR.
Why You Should Care?
What is Affected by LIBOR?
How Banks Can Manipulate LIBOR
Student Loans: are calculated from the LIBOR plus a marginal factor.
Mortgages: have interest rates based on the LIBOR.
Loans: when LIBOR goes up, rates and payments on loans rise as well.
Derivatives: LIBOR is used to price financial instrumetns like swap transactions and future contracts.
Since banks are not required to make their transaction prices public, banks can collude together to submit make-up figures rather than the actual borrowing rates to move the LIBOR rate in the direction that is to their benefit.