Making the transition from LIBOR as a global benchmark interest rate

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 be unavailable after 2021

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.

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. As a result, there is a strong possibility that LIBOR will permanently cease to exist after December 31, 2021.

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 before the end of 2021. 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.