LIBOR (London Inter-bank Offered Rate) has been a dominant interest rate benchmark since the 1980s and is referenced in trillions of dollars of financial contracts, including derivatives and variable rate commercial loans.
In the past decade, LIBOR has come under increased scrutiny as the inter-bank lending transactions underlying LIBOR decreased and left the benchmark susceptible to manipulation and scandal.
Led by the United Kingdom’s Financial Conduct Authority, regulators have taken steps to cease the publication and use of LIBOR by the end of 2021.
Update: March 2021
In March 2021, the LIBOR Administrator confirmed the dates for the cessation of LIBOR. U.S. regulatory agencies are on record that banks entering into new LIBOR contracts after December 31, 2021 would create safety and soundness risks. Most common tenors of LIBOR including overnight, 1-month, 3-month, 6-month and 12-month will end on June 30, 2023. The Federal Reserve tasked the Alternative Reference Rate Committee (ARRC) with determining a new reference rate to replace LIBOR. ARRC recommended the Secured Overnight Financing Rate (SOFR) in 2017.