How Many LIBOR Rates Are Currently Published Each Business Day?
Understand the evolving landscape of a key financial benchmark, its limited current publication, and the transition's impact.
The London Interbank Offered Rate (LIBOR) served for decades as a foundational benchmark interest rate for financial products globally. It influenced a vast array of loans, derivatives, and other financial contracts, impacting trillions of dollars in transactions. The financial industry has been shifting away from LIBOR due to concerns about its reliability and methodology.
Current Status of LIBOR Publication
As of September 30, 2024, the publication of all LIBOR settings has permanently ceased. Before this date, a limited number of U.S. Dollar (USD) LIBOR settings (1-month, 3-month, and 6-month tenors) were still published in a “synthetic” form.
These synthetic rates provided a temporary bridge for “tough legacy” contracts that were difficult to transition to new reference rates. The UK Financial Conduct Authority (FCA) compelled ICE Benchmark Administration (IBA), LIBOR’s administrator, to publish these rates for a specific period. This allowed market participants additional time to address outstanding financial obligations tied to these benchmarks.
The decision to completely cease all LIBOR publications marks the culmination of a multi-year global effort to move away from this benchmark. The final cessation ensures that financial markets operate on more robust and resilient foundations. This transition underscores a broader shift towards reference rates based on actual transactions rather than submissions.
The Shift to Alternative Reference Rates
The transition away from LIBOR was driven by its inherent vulnerabilities, including concerns that its reliance on bank estimates made it susceptible to manipulation. This led to a global initiative to replace it with more robust, transaction-based alternative reference rates (ARRs). ARRs are calculated using real and observed transactions, offering greater transparency and reliability.
For U.S. Dollar-denominated financial products, the primary alternative reference rate is the Secured Overnight Financing Rate (SOFR). SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities in the repurchase agreement (repo) market. Unlike LIBOR, which included a credit risk component, SOFR is considered a near risk-free rate, reflecting actual, observable transactions.
In the United Kingdom, the Sterling Overnight Index Average (SONIA) has emerged as the replacement for GBP LIBOR. SONIA is an overnight rate based on actual transactions, specifically measuring the cost of overnight borrowing by banks. It is a backward-looking rate, meaning the interest rate for a period is determined at the end of that period, in contrast to LIBOR’s forward-looking nature.
For Euro-denominated transactions, the Euro Short-Term Rate (€STR) has become the official overnight benchmark. Published by the European Central Bank, €STR reflects the average rate at which banks borrow euros overnight on an unsecured basis. Similar to SOFR and SONIA, €STR is based on actual market transactions rather than estimated submissions.
Managing Contracts Tied to Remaining LIBOR Rates
Financial contracts that referenced the few remaining LIBOR rates, particularly “tough legacy” contracts, posed challenges. They often lacked clear fallback provisions to specify a replacement rate once LIBOR ceased. Without suitable fallback language, these contracts could face legal uncertainty or unintended financial consequences.
To address this, regulatory bodies and industry groups worked to facilitate the orderly transition of these agreements. In the United States, the Adjustable Interest Rate (LIBOR) Act was signed into law to provide a uniform, nationwide process for replacing LIBOR in such contracts. This legislation effectively mandates the replacement of LIBOR with a SOFR-based rate, along with any necessary spread adjustments, for contracts that do not have adequate fallback provisions.
The Act ensures that contracts without specific benchmark replacement language or those that revert to a LIBOR-based rate are automatically transitioned to a Board-selected benchmark replacement. This legislative intervention aimed to minimize market disruption and potential litigation from LIBOR’s cessation. Entities needed to review their financial agreements to identify any remaining LIBOR exposures and confirm appropriate fallback mechanisms or amendments were in place for continuity.