The London Interbank Offered Rate (LIBOR) has been a common rate used by financial institutions since the 1980s. Acting in both lending and borrowing capacities, LIBOR was commonplace as a standardized base (reference) rate in financial contracts ranging from lending agreements to interest rate swap contracts to bonds. There were major criticisms of LIBOR following the financial crisis, such as it lacking the market-driven inputs necessary to serve as a benchmark. These criticisms led to the phase out of certain LIBOR tenors starting at the end of 2021 and the remainder through June 2023. As a result of the publication of LIBOR rates ceasing, one or more replacement benchmark rates should be identified for those contracts that referenced LIBOR. Our white paper, Financial institutions: Fundamentals of LIBOR phase out and transition, provides additional background on the LIBOR phase out, as well as information about available replacement reference rates. Our white paper also discusses the operational complexity financial institutions may experience in transitioning from LIBOR to a replacement rate, and the efforts of the Financial Accounting Standards Board to provide optional expedients that will ease the accounting for that transition.
The August 2023 edition of our guide has been updated to reflect the cessation of LIBOR’s publication on June 30, 2023.
