LIBOR is the abbreviation for the London Interbank Offered Rate and is widely used as the benchmark interest rate for loans and bonds. Major global banks calculate the interest rate to borrow funds in the London short-term financial market and report to an organization. The average interest rate is then calculated and published in five currencies including the U.S. dollar, the Euro, the British pound, the Japanese yen, and the Swiss franc.
In 2012, several banks were found manipulating the rate by fraudulently reporting the interest rate in their own bank’s favor, thereby causing its reliability to erode significantly. In July 2017, the British Financial Conduct Authority (FCA) announced that the publishing of LIBOR would not be guaranteed after the end of 2021.
In March 2021, FCA finally announced that it would cease publishing LIBOR based on the current methodology immediately after the end of 2021 except for some US dollar LIBOR settings.
If the publishing of LIBOR is suspended, calculations of payment amounts for loan interest and derivative transactions may not be able to take place and could cause confusion in the financial markets. Consequently, financial institutions and companies must halt all new transactions that refer to LIBOR while at the same time switching existing transactions to an alternative benchmark.
* The “panel bank” LIBOR publication ceased at the end of 2021, except for some US dollar settings.