Question

Why might the fact that London is within a time zone five hours in advance of the US East Coast help explain why US banks account for fewer than 20% of those surveyed for the daily Libor calculation that is released at 1100 London time?

Answer 1

We need to understand the mechanism of determination of LIBOR and its announcement before we can answer this question.

LIBOR stands for London Inter Bank Borrowing Rate. s the name suggest, it's an interest rate at which one bank can borrow from other.

So, the LIBOR is an average of borrowing rates communicated by the participating banks. Participating banks are those select banks who are surveyed daily for their inter bank borrowing rate. In a simple language, these are the banks who are asked this question every morning - "At what rate you will be able to borrow today, if you need to". All the participating banks then reply by 11:00 AM London time. And the responses submitted by these banks are then fed into a complicated mathematical program that throws out LIBOR value which gets published and announced at around the same time, every week day.

Now that we have understood the procedure, it should not take us long to realize that the differential time zone, is such that most of the banks in USA might not have yet started their operations by the time the participating banks are expected to communicate their inter borrowing rate to Thomson Reuters. The fact that USA runs around five hours behind London, might be making it difficult for the USA banks to get surveyed. And hence this may be a reason why US banks account for fewer than 20% of those surveyed for the daily Libor calculation that is released at 1100 London time.