LIBOR Transition

The Financial Conduct Authority (FCA) determined that 1-week and 2-month US LIBOR term structures will no longer operate by the end of 2021. Additionally, all other LIBOR rates will cease to be used as a benchmark index, with all reliance ending on or before June 30, 2023.

The Federal Reserve expects all banking institutions to have a transition plan in place from LIBOR well ahead of the date determined, and all institutions with outstanding loans are expected to understand the impact of this transition in order to limit as much risk as possible throughout the transition from LIBOR. 

What is LIBOR?

LIBOR (London Interbank Offered Rate) is an interest rate reference index that approximates the rate charged between various financial institutions.  LIBOR has been used globally for over 30 years, and has been used as a benchmark reference rate for the global financial system, including various financial products offered by AUB. 

Why is LIBOR going away?

During the 2007 financial crisis, the market experienced unpredictable fluctuations in LIBOR. In the years following the downturn, various market participants grew concerned that daily LIBOR resets were becoming increasingly subjective, with rate resets determined by hypothetical transactions, as fewer and fewer actual transactions were executed between LIBOR’s rate-setting institutions.  Moving away from this volatile rate index has been the goal for regulators, in search of a more stable, measurable index. 

What is replacing LIBOR?

Various indices have been promoted as candidates to replace LIBOR. Among these are the Secured Overnight Financing Rate (SOFR) and the Bloomberg Short-Term Bank Yield Index (BSBY). Compared to LIBOR, both SOFR and BSBY are based on significantly larger volumes of transactions, making both indices a more viable reference rate choice.

When is LIBOR going away?

Starting in 2022, LIBOR will no longer be an acceptable reference index for newly originated, modified or renewed credit agreements. Existing loans based on LIBOR, which mature after June 30, 2023, will also require modification onto a supported, alternative reference index. For existing loans, anticipate additional communication from AUB during the next several months. 

What steps are we taking to ensure readiness?

Atlantic Union Bank is proactively working to adopt multiple supported indexes and will continue to work with clients to assure a smooth transition. We recognize that there may be obstacles during this transitional period, and it is our goal to ensure that the obstacles are limited and that clients feel comfortable with each step of the process.  We encourage all clients with any questions or concerns to Contact their Relationship Manager.