LIBOR Index
The Transition Away from LIBOR
The U.S. financial system is undergoing a massive and complex transition away from the London Interbank Offered Rate, commonly known as LIBOR. LIBOR is a benchmark interest rate that is referenced in trillions of dollars of financial contracts, such as business and consumer loans, interest rate derivatives, adjustable rate mortgages and floating rate notes. Rest assured, work and planning on this transition away from LIBOR has been underway for the past several years as the end of LIBOR is nearing.
As a client of Old National Bank, we want to assure you that we stand ready to answer your questions and partner with you as we work through this transition together. The following FAQ guide is meant to help answer commonly asked questions about this change. If you have specific questions about how this transition will affect you, please reach out to your Old National relationship manager.
Why is LIBOR being discontinued?
LIBOR was introduced in the 1980’s as a benchmark interest rate that was intended to reflect banks’ average cost of short-term, wholesale unsecured borrowing. Over time, and particularly during the financial crisis that began in 2007, banks became less and less reliant on inter-bank lending. As a result, the number and dollar volume of transactions from which LIBOR was derived declined dramatically. To make up for this shortfall, LIBOR panel banks resorted to using “expert judgment” when submitting various rates used in calculating LIBOR. This left it susceptible to manipulation and fraud.
In 2017, the UK Financial Conduct Authority (FCA), the regulator for LIBOR, announced that after December 31, 2021, the panel banks would no longer be required to submit settings for LIBOR. (This has since been revised to June 30, 2023, for most LIBOR tenors.) This announcement effectively started the countdown to the end of LIBOR.