LIBOR Transition: What You

Need to Know

Replacing the world’s most widely used interest rate benchmark

The UK’s Financial Conduct Authority (FCA) has made it clear that the publication of LIBOR, the London Interbank Offered Rate, will cease. LIBOR, a benchmark interest rate at which major global banks lend to one another in the interbank market, is underpinning over $200 trillion[1] USD of financial contracts. With the approaching end to LIBOR as an interest rate index, financial institutions and individuals or entities with loans that could be impacted need to understand what this change means in order to limit disruption and mitigate risk.
 

Industry Announcements

On March 5, 2021, the ICE Benchmark Administration, the benchmark administrator for LIBOR (IBA), and the UK Financial Conduct Authority, the regulatory supervisor of the IBA (FCA), announced the dates after which all 35 LIBOR settings will either cease to be provided or will no longer be representative. This confirmation followed a similar November 30 statement by the Federal Reserve Board around the proposed cessation dates and provides certainty regarding when LIBOR rates will no longer be available.

  • All sterling, euro, Swiss franc, and Japanese yen IBOR rates ceased to be available as of January 1, 2022
  • One-week and two-month USD LIBOR tenors ceased to be available as of January 1, 2022
  • All other USD LIBOR tenors will no longer be available after the end of June 2023

Following this announcement, the fallback spread adjustments were published and set by Bloomberg, effective March 5, 2021. These actions did not trigger implementation of a new reference rate for existing loans or swaps.

Prior regulatory guidance also directed banks to stop entering new USD LIBOR contracts by the end of 2021. PNC has complied with this direction. As of January 1, 2022, LIBOR is no longer available for any new loans or certain modifications to existing loans. LIBOR is available only in limited instances for new swaps and certain modifications of existing swaps.

What is LIBOR?

LIBOR has been used globally as a benchmark to gauge funding costs and investment returns for financial contracts for more than 3 decades. It is used to help set the interest rates on many loans, swaps, bonds, credit cards, adjustable rate mortgages, and other products offered by financial institutions.

 

Why is LIBOR being phased out?

Changing industry norms and LIBOR manipulation scandals are driving a shift away from LIBOR, causing interbank lending markets to become much thinner and the number of actual transactions upon which the rate is based to decrease significantly. That has caused regulators globally to actively advocate that markets move away from LIBOR to a more reliable index.

 

How is PNC preparing for the LIBOR transition?

PNC has a large team dedicated to this transition that is active in many industry working groups and closely engaged with market activities. For existing LIBOR-based loans and associated underlying derivative contracts maturing beyond June 2023 that do not contain adequate provisions addressing LIBOR cessation, PNC will contact clients to add or amend those provisions or to move to another replacement rate.

Frequently Asked Questions

LIBOR Transition Resources

Alternative Reference Rate Committee

ARRC is group of private-market participants convened by the Federal Reserve Board and the New York Fed.

Visit ARRC »

 

ARRC SOFR Transition
Overview

In 2017, the ARRC selected SOFR as the rate that represents best practice for use in certain new USD derivatives and other financial contracts.

Learn More »

 

Bloomberg Short-Term Bank Yield Index

Overview of Bloomberg’s development of BSBY – a dynamic credit sensitive rate with a forward term structure.

Learn More »

 

International Swaps and Derivatives Association

ISDA is comprised of a broad range of derivatives market participants.

Visit ISDA Transition from LIBOR »

 

Federal Reserve Bank of
New York

Working within the Federal Reserve System, the New York Fed implements monetary policy, supervises and regulates financial institutions and helps maintain the nation's payment system.

Visit New York Fed»
 

Important Legal Disclosures and Information

    1. https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2018/ARRC-Second-report

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