Post-Libor Bank Rate Changes
by: The Knowledge GroupSeptember 17, 2020
With the collapse of LIBOR as a standardized interbank rate reference, a family of new interest rate benchmarks, or IRBs, have come into being as a replacement to continue the interbank financial lending transactions. As nothing stays a vacuum for long, the replacement of IRBs varies considerably from country to country, creating a panoply of rate models to keep track of now. The LIBOR rate was a comprehensive umbrella that was integrated with a number of major currencies, ranging from the Pound Sterling (GBP) to the Japanese Yen (JPY) to the U.S. Dollar (USD) and Euro (EUR). The complete wipeout of LIBOR is scheduled by the end of 2021, but some central banks are already on the move well before then.
Known as risk-free rates, or RFRs, alternative reference rates are already in play and available to use. They are seen as almost risk-free and produce viable interbank rates. Some are already seeing the wide play, like SONIA for the GBP banking market. The next big one to watch is the replacement of EONIA for the Euro to the €STR. The EONIA rate will also end after 2021, compounding a major landscape change for the related interbank rate environment.
A few of the major RFRs in place to reference are as follows:
|Country||Old IBOR||New RFR||Administrator|
|United Kingdom||GBP LIBOR||Sterling Overnight Index Average (SONIA)||Bank of England|
|United States||LIBOR||Secured Overnight Financing Rate (SOFR)||Federal Reserve Bank of New York|
|Japan||JPY LIBOR and TIBOR||Tokyo Overnight Average Rate (TONA)||Bank of Japan|
|Euro Region||EURIBOR||Euro short-term rate (€STR)||European Central Bank|
|Singapore||SIBOR and SOR||Singapore Overnight Rate Average (SORA)||Monetary Authority of Singapore (MAS)|
The most likely areas of consumer and business impact downstream with all the changes to RFRs will include adjustable-rate loans, credit cards, auto financing, home equity lines of credit (LOCs), and student loans. Essentially, anything that uses a known index for a float metric on a fluctuating loan rate will be affected with the replacements.