The use of LIBOR in financial contracts

LIBOR is a rate at which banks can borrow from other banks and is an indicator of the cost of unsecured borrowing in the interbank markets. For decades, many financial contracts have referenced LIBOR to determine the amount of interest a borrower will pay. For example, LIBOR is present in many small business loans, large syndicated loans and commercial real estate loans. It’s also used in consumer products like adjustable-rate mortgages, student loans and some credit cards.

In the United States in 2014, the Federal Reserve organized the Alternative Reference Rates Committee (ARRC) made up of banks, asset managers, corporate treasurers and industry trade associations to select an alternative reference rate to LIBOR.

LIBOR expected to become unavailable

One of the primary criticisms of LIBOR is that it is increasingly based on estimates submitted by panel banks, which has led to a lack of transparency and volatility, and may make it a less representative rate as time passes. Many industry participants recognize the need for a reference rate that reflects market level interest rates and is rooted in actual trading activity.

Recent actions by LIBOR’s administrator, ICE Benchmark Administration Limited (IBA), and regulators have increased the likelihood that LIBOR will cease to exist in the coming years. 

In July 2017, the Financial Conduct Authority, which oversees LIBOR, announced that after December 31, 2021, it would not compel panel banks to submit LIBOR data. 

In November 2020, the IBA announced that it intends to stop publishing LIBOR.

  • The IBA intends to stop publication of two of its USD LIBOR settings – one week and two month – after its December 31, 2021 publication. 
  • The IBA also intends to stop publishing its most commonly referenced USD LIBOR settings (overnight, and one, three, six, and 12 months) after its June 30, 2023 publication. 

The IBA’s consultation on this proposal will close at the end of January 2021, when a final determination on LIBOR publication end dates is expected to be made. 

Also in November 2020, U.S. regulators – the Federal Reserve Board, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency – released a joint statement on the LIBOR transition. 

U.S. Bank will closely monitor these developments and continue to update this page.

We’re making the transition as smooth as possible for you.

Following the guidance from regulators, U.S. Bank will be ready to move from LIBOR to alternative reference rates. We’ve established an enterprise-wide LIBOR Transition Office (LTO) to lead our preparation for the change. The LTO, with oversight from senior leaders, is working in partnership with designated LIBOR leaders from each business area to make the required changes. We’re well positioned to facilitate a smooth LIBOR transition for our customers and will continue to provide you with information throughout the process.

In the meantime, please review the helpful LIBOR resources provided on this page and stay up to date with key industry developments. We also encourage you to take part in consultations by regulators and industry working groups, and seek independent professional advice on any concerns you may have on this transition.

Frequently asked questions