The value of the world’s main financial benchmark—the London Interbank Offered Rate, or Libor—has been thrown in doubt

Libor, the rate at which banks lend on an unsecured basis to one another, is set by the British Bankers’ Association. The BBA says some banks have understated the rate they pay on loans to avoid appearing in trouble. That means that Libor—which is the benchmark for most loans, many mortgages and a big chunk of interest-rate derivatives—could be too low. If it shoots up, what will that mean for my investments? For my cost of capital?

How much of a threat is the credit-derivatives market?

The amount of credit-default swaps outstanding surged 37 percent to $62 trillion in the second half of 2007. That dwarfs the U.S. stock market capitalization, and means there are far more derivatives written on underlying debt than the debt itself. How much pressure is this putting on the banks and other institutions that trade these instruments? What could a problem in this market mean for my access to capital?