FT Guide to Banking

6

Corporate banking: key activities

Banks borrow and lend a great deal of money to each other, every working day. When lending to the most creditworthy banks they charge very low interest rates compared with those charged to corporate customers. These interbank lending rates form fundamental benchmarks for a great deal of other borrowing. For example, corporations are charged interest rates that are a number of basis points (one-hundredth of a per cent) above the rates the safest banks are charged for borrowing. These benchmark rates are determined in the interbank market, the dominant one being in London, with its London Interbank Offered Rate (LIBOR). This market is crucial for loans all over the world, so we need to get to grips with ...