British Bankers Association

Floating-rate notes (FRNs) are Eurobonds that have their coupon levels reset periodically, with reference to a money market rate. For dollar-denominated assets, this is LIBOR (the London Inter-bank Offer Rate) as determined by a group of 16 reference banks. The mechanism is run by the British Bankers Association (BBA). The BBA also supervises LIBOR fixings in a number of other currencies. For euros, the most common reference rate is EURIBOR, as determined by a reference group of around 50 banks chosen by European Banking Federation. In both cases, most issues are priced off of the three-month rate, although one-month and six-month rates are also used. 

Credit Derivatives are a relatively recent addition to the range of financial instruments used by banks and financial institutions. However, there has been strong growth in this innovative area of the capital markets. The British Bankers Association (BBA) estimates that at the end of 2001 the global market (excluding asset swaps) accounted for over 1 trillion. The projected growth rate for the global credit derivatives market is predicted to reach a 4.8 trillion by 2004. 

Floating-rate bonds, often referred to as floating-rate notes (FRNs), also exist. The coupon rates of these bonds are reset periodically according to a predetermined benchmark, such as 3-month or 6-month LIBOR (London interbank offered rate). LIBOR is the official benchmark rate at which commercial banks will lend funds to other banks in the interbank market. It is an average of the offered rates posted by all the main commercial banks, and is reported by the British Bankers Association at 11.00 hours each business day. For this reason, FRNs typically trade more like money market instruments than like conventional bonds. 

Crosbie, P. 1997. Modeling Default Risk. Credit Derivatives Key Issues. London British Bankers Association. 

---