What is LIBOR?
- LIBOR (London Interbank Offered Rate) is a benchmark rate that represents the amount banks would pay to borrow from one another on an unsecured basis.
- There are over $200 trillion in financial contracts tied to LIBOR.
Why is it going away?
- A lack of underlying transactions that the index is meant to represent has caused regulators worldwide to advocate for the move away from LIBOR to a more reliable index.
When is it going away?
- The UK Financial Conduct Authority (FCA) and Alternative Reference Rates Committee (ARRC) announced on March 5, 2021, the dates LIBOR rates will no longer be published. Many banks, including Leumi, have opted to cease using LIBOR for new loans ahead of these dates:
- The USD LIBOR settings (Overnight, 1, 3, 6, and 12 Months) will no longer be published after June 30, 2023.
- GBP, EUR, CHF, and JPY LIBOR settings, as well as the 1 Week and 2 Month USD LIBOR settings will no longer be published after December 31, 2021.
Potential replacements for LIBOR
- Financial markets and
regulators worldwide are working towards finding an alternative reference rate.
The ARRC has formally recommended the Secured Overnight Financing Rate (SOFR), whereas
other market participants have developed their own alternative reference rates.
It is still unclear as to which index or set of indices the market will
gravitate towards. SOFR and other alternative rates are listed below with links
for more information about them.
- Secured Overnight Financing Rate (SOFR) – ARRC_Press_Release_SOFR_Starter_Kit.pdf (newyorkfed.org)
- Bloomberg Short Term Bank Yield Index (BSBY) – BSBY | Bloomberg Professional Services
- AMERIBOR – Ameribor® | The New Benchmark
What is Bank Leumi USA doing to prepare for the transition?
- We have a dedicated LIBOR transition team actively monitoring market developments.
- We are proactively exploring these options so we can serve our clients as efficiently as possible once more consensus is reached regarding an alternative reference rate.
What does this mean for clients?
- No action is required at this time. BLUSA will notify impacted clients in advance of any required changes.
- If you have a LIBOR-based loan, it may need to be modified to calculate interest amounts based on an alternative rate. If this is the case, BLUSA will reach out to you when needed.
- Clients can reach out to their relationship managers at any time to learn more about the LIBOR transition.