Interbank Offered Rate (IBOR) reform — Overview

Interest rate benchmarks include:

  • London Interbank Offered Rate (LIBOR)
  • Euro Interbank Offered Rate (EURIBOR)
  • Euro Overnight Index Average (EONIA)
  • certain other Interbank Offered Rates (IBORs)

The UK Financial Conduct Authority (FCA) will no longer compel banks to submit rates used for the calculation of LIBOR, after 2021.

This indicates that LIBOR is to be discontinued, most likely after the end of 2021.

Regulators globally emphasized that market participants now should start transitioning from the use of IBORs to alternative benchmark rates.

Regulatory authorities, public & private sector working groups in several jurisdictions, include:

  • International Swaps and Derivatives Association (ISDA)
  • Sterling Risk-Free Rates Working Group
  • Working Group on Euro Risk-Free Rates
  • Alternative Reference Rates Committee (ARRC)

They have been discussing alternative benchmark rates to replace the IBORs.

These working groups are considering how to support a transition to alternative rates and the development of new products referencing them.

These reforms are expected to cause at least some interest rate benchmarks to perform differently to the way that they do currently or to disappear, which may impact the products and services of the banks that people currently use and those the banks may provide in the future.

A wide range of financial products are using benchmark rates to determine interest rates and payment obligations, such as:

  • derivatives
  • bonds
  • loans
  • structured products
  • mortgages
  • etc.

Benchmark rates are used to value financial products and also be a performance tracker for funds, among other purposes.

LIBOR is the most widely used benchmark. It is used in financial products denominated in a number of currencies and is published in

  • GBP (British Pound)
  • USD (US Dollar)
  • EUR (Euro)
  • JPY (Japanese Yen)
  • CHF (Swiss Franc)

Some other currencies also use specific benchmarks such as

  • EURIBOR and EONIA — for EUR
  • Tokyo Interbank Offered Rate (TIBOR) — for JPY
  • Hong Kong Interbank Offered Rate (HIBOR) — for HKD
  • Singapore Interbank Offered Rate (SIBOR) — for SGD

Financial regulatory authorities stressed their concern that the interbank lending market, which is using IBORs, is no longer sufficiently active or liquid.

The Financial Stability Board (FSB) in 2014 recommended the market to reform major interest rate benchmarks and use near risk-free rates (RFRs) that are based on more active and liquid overnight lending markets, instead of IBORs.




Project Manager to integrate Fintech to World-leading banks | Linkedin:

Love podcasts or audiobooks? Learn on the go with our new app.

Recommended from Medium

When COVID-2019 peters out — What to expect in the global supply chain

Research Analysis — Reliance Industries Limited

Jamaica Could Benefit From Having Daylight Saving Time — Joe Issa

Best Investment Sectors in 2020 | Briefing v17 — MoneyRedPill

Refined life dream can’t be fulfilled by buying a small thing

The State of Tax Reform: It’s Really Just the Beginning

Not Your Parents’​ Inflation (or Monetary Policy)

Banking Culture has Australians Addicted to Castles

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Benson Wong

Benson Wong

Project Manager to integrate Fintech to World-leading banks | Linkedin:

More from Medium

The Ultimate Guide to Understanding Carbon Credits

Let’s talk about random number generation

What Is An IP Address And How Does It Work?

A question of character for SME lending — begini