Major structural changes in global financial markets regarding interest rate benchmarks are now underway. Central banks and regulators in a number of key jurisdictions are committed to a transition away from the various Interbank Offered Rates (IBORs) to alternative rates expected to be more robust and less vulnerable to manipulation. The London Interbank Offered Rate (LIBOR) is the most commonly used IBOR.
The IBORs represent an average of the rates at which Panel Banks believe that they could borrow money in various currencies in the interbank market and reflect both the interest rate environment and the expected credit and liquidity risks faced when lending on the interbank market. Today, the IBORs are widely used as benchmark rates in financial transactions, including in the derivatives, bonds, loans, and structured markets but the IBORS are widely anticipated to be discontinued or become less reliable as regulatory support for the rates is withdrawn at the end of 2021.
A variety of within Risk Free Rates (RFRs) have been proposed by regulatory authorities and industry working groups as alternative benchmark rates to replace the IBORs. Regulators and industry groups are encouraging and supporting the transition to these alternative rates as further described below.
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