This information is intended to educate Texas Capital Bank clients on the anticipated transition from LIBOR to an alternative benchmark interest rate. This will impact ALL loans/leases/contracts/swaps with LIBOR references.
What is LIBOR?
London InterBank Offered Rate – a benchmark interest rate set in London each business day for multiple currencies.
Why is LIBOR going away?
Due to confirmed manipulations, and concerns about the breadth and depth of the market behind LIBOR (the lack of which has resulted in LIBOR being sustained by “expert judgment” on the part of the panel banks), consensus is that there needs to be a more viable benchmark rate supported by active underlying markets. The UK Financial Conduct Authority announced that, as of the end of 2021, it will no longer regulate LIBOR or require panel banks to report LIBOR transactions. As a result, it is expected that LIBOR will no longer be a common benchmark rate for financial transactions at that time, or even well before the end of 2021.
What will replace LIBOR?
In the U.S., the Alternative Reference Rate Committee (ARRC) – a group of private-market participants, including banks, dealers, the New York Federal Reserve, and other regulatory groups – has been tasked with finding a viable replacement for LIBOR. The ARRC has recommended that the Secured Overnight Financing Rate (SOFR) replace LIBOR. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities.
More information is available at newyorkfed.org/arrc/index.html.
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Alternative Reference Rates Committee
International Organization of Securities Commissions
Secured Overnight Financing Rate
Notice: The contents of this webpage are intended for general information purposes only and should not be construed as legal, tax or accounting advice. This information may not be quoted or referred to in any other publication without the prior written consent of Texas Capital Bank.