LIBOR Cessation Countdown Clocks

US 1-week and 2-month LIBOR were last published on December 31, 2021.

US 1-month, 3-month, 6-month, 12-month LIBOR were last published on June 30, 2023.

Cessation complete!

The transition away from the London Interbank Offered Rate (LIBOR) in the United States marks a significant shift in the financial landscape, culminating in the adoption of the Secured Overnight Financing Rate (SOFR) as a replacement. This transition was overseen by the Alternative Reference Rates Committee (ARRC), a group formed by the Federal Reserve Board and the New York Fed in 2014.

Background and Necessity for Change

LIBOR, once the benchmark interest rate used globally for short-term, interbank loans, faced scrutiny following a rate-manipulation scandal. Its credibility was further eroded by a significant decline in the volume of transactions underpinning it, raising concerns about its reliability and representativeness. This led to a global search for more robust alternatives.

Formation of the ARRC

In response to these concerns, the ARRC was established to identify a more robust, transparent, and sustainable alternative to LIBOR in the U.S. The committee comprises a diverse set of private-sector entities with regulators as ex-officio members, reflecting a wide range of industry participants and stakeholders.

The Selection of SOFR

After extensive market analysis and consultations, the ARRC selected SOFR as the preferred alternative to U.S. dollar LIBOR. SOFR, based on transactions in the Treasury repurchase market, offers a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. Its adoption was due to several key strengths:

• Volume and Depth: SOFR is underpinned by a deep and liquid market with robust transaction volumes, enhancing its representativeness and reducing the risk of manipulation.
• Reflective of Market Conditions: As a secured rate, SOFR generally reflects the credit risk and general funding conditions in the U.S. financial markets.
• Regulatory Support: SOFR's development and implementation received strong regulatory backing, ensuring a smoother transition process.

Transition Process

The transition away from LIBOR was a complex, multi-year process involving extensive coordination among regulators, industry participants, and end-users. Key aspects of the transition included:

• Education and Outreach: The ARRC engaged in broad outreach efforts to educate stakeholders about the transition, the characteristics of SOFR, and the need for contract remediation.
• Development of New Products and Conventions: Financial institutions developed new products based on SOFR, and market conventions evolved to facilitate its use in a wide range of financial products.
• Legacy Contracts: Addressing legacy contracts referencing LIBOR was a critical challenge, with efforts focused on amending contracts or implementing fallback language.
• Regulatory Guidance and Incentives: Regulators provided guidance and, in some cases, incentives for early adoption, while ensuring a level playing field and minimizing market disruptions.

Sources

• Alternative Reference Rates Committee March 2021 Progress Report