LIBOR Transition

The continuing central bank global push for the transitioning from interbank offered rates (IBOR’s) to a new set of Alternative Reference Rates (ARRs) also known as Risk-Free-Rates (RFRs) is being driven by regulators around the globe such as the Federal Reserve Bank of New York and the Bank of England. Other influential industry groups such as the International Swaps and Derivatives Association (ISDA) and the Alternative Reference Rates Committee (ARRC) continue to publish and comment on this topic.
 
IBOR is an interest rate based on quotes from banks on how much it would cost to borrow  money from each other.  Attempts by banks to rig the 50-year old benchmark denominated in sterling, yen, Swiss franc, dollar and euro, prompted regulators to call time on it and replace them with Risk Free Rates (RFR).
 
The London Interbank Offered Rate (LIBOR) remains, at this time, the most widely quoted IBOR rate. It is currently produced in 7 tenors:

  • Overnight/spot next, one week, one month, two months, three months, six months and 12 months 
  • It is quoted across 5 currencies USD, GBP, CHF, JPY and EUR 
  • It is estimated that as of mid-2018 in excess of $400 trillion worth of financial contracts are fixed off of LIBOR (BIS, 2019) in maturities ranging from O/N to more than 30Y. 

ARR’s are based on collateralizations including secured overnight repo rates in USD SOFR, and CHF SARON as well as unsecured overnight depo rates GBP SONIA, JPY TONA and EUR ESTR.
 
These alternatives are intended to provide a more robust benchmark and serve as a more credible measurement of short term risk free borrowing with the first wave of RFRs to be fully adopted by 2022 this is the agreed deadline set for the changeover away from IBORs.

ARR Data Matrix Q3 2021


Tradition ARR Summary Sell Sheet

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 Tradition_ARR_Summary.pdf