What is LIBOR (US Dollar)?

The London Interbank Offered Rate (LIBOR) is a commonly used interest rate benchmark underlying about $200 trillion in cash and derivative products like adjustable rate mortgages, business and commercial loans, and interest rate Swaps.

LIBOR is based on the estimated cost of borrowing reported by a panel of larger banks and is calculated and published daily by the Intercontinental Exchange (ICE).

Why is LIBOR going away?

LIBOR’s credibility has declined over the last decade as it is based on transactions among banks that don’t occur as often as they did historically. This decrease in transactions has left the calculation of LIBOR based more on judgment and as a result less reliable and credible.

When is LIBOR going away?

LIBOR’s Administrator (IBA) and regulator (FCA) have agreed on two key dates for discontinuing the use of LIBOR:

Immediately after December 31, 2021, the IBA will no longer publish the one-week and two-month USD LIBOR tenors.
Immediately after June 30, 2023, the IBA will no longer publish the remaining major USD LIBOR tenors.
The period between these two dates is primarily intended to allow legacy contracts, such as variable rate loan notes, to mature.

What will replace LIBOR?

The financial industry worldwide has been working diligently to find alternative reference rates (ARRs). For the US Dollar, the industry is considering the Secured Overnight Financing Rate (SOFR). SOFR is different from LIBOR in that they are overnight interest rates that incorporate minimal credit risk. And, unlike LIBOR, SOFR is significantly more active relying on transactions and not judgment.

For more general information on LIBOR Transition, see Alternative Reference Rate Committee LIBOR Transition.