LIBOR Transition

Transition from LIBOR

The London Interbank Offered Rate, also known as LIBOR, has served as a benchmark interest rate for loans around the world. However, publication of this rate was originally expected to be discontinued at the end of 2021, due to concerns regarding its reliability.

Why is it changing?

For decades, LIBOR was a convenient way to determine the cost of floating-rate debt around the world. The rate is calculated from a daily survey of large banks that estimate the cost of borrowing from one-another without putting up collateral. Because of concerns about the reliability of LIBOR, British officials announced that they would stop requiring banks to provide a daily quote after 2021, which is expected to result in LIBOR no longer being published. In March 2021, ICE Benchmark Administration (IBA), the administrator of LIBOR, announced that one-week and two-month U.S. LIBOR rate quotes will cease at end of 2021, and that all other U.S. LIBOR rate quotes will cease at end of June 2023, effectively discontinuing LIBOR. This delay will help to ensure a more orderly transition away from LIBOR, but it will not alter our transition efforts.

When is it changing?

The Alternative Reference Rates Committee (ARRC), convened by the Federal Reserve Board and the New York Federal Reserve Bank to seek alternatives to LIBOR, has recommended a new index – the Secured Overnight Financing Rate (SOFR) – as the new benchmark for U.S. bond and loan market transactions. The New York Federal Reserve Bank now publishes SOFR daily, as well as SOFR Averages and a SOFR Index and the CME Group publishes Term SOFR.

The ARRC’s goal is to assist financial institutions in completing the transition from LIBOR to SOFR^[PDF]. In March 2021, the IBA announced that one-week and two-month LIBOR rate quotes will cease at end of 2021, and that the USD LIBOR panel will cease at end of June, 2023, effectively discontinuing LIBOR. This delay will help to ensure a more orderly transition away from LIBOR, but it will not alter our transition efforts. In fact, the Federal Reserve Board, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency have issued a supervisory guidance instructing financial institutions to cease entering into new contracts that use USD LIBOR as a reference rate after December 31, 2021.