The London Interbank Offered Rate, also known as LIBOR
, has served as a benchmark interest rate for loans around the world. However, this rate will be eliminated in the near future, due to growing concerns regarding its reliability.
Why is it changing?
For decades, LIBOR was a convenient way to determine the cost of floating-rate debt around the world. The rate is calculated from a daily survey of large banks that estimate the cost of borrowing from one-another without putting up collateral. Because of concerns about the reliability of LIBOR, British officials announced that they would stop requiring banks to provide a daily quote after 2021, resulting in the impending retirement of LIBOR. Though the economic climate is changing at a rapid pace in this current environment, the retirement of LIBOR has not been extended past 2021.
There are several alternative indexes being proposed or in development, including SOFR
, Ameribor and the US Bank Yield Index. There are also existing floating rate indexes such as individual bank Prime Rates or nationally quoted Prime Rates, that can be utilized today. We are continuing to evaluate each index as the transition develops.
How are we preparing for this transition?
At Commerce Bank, we pride ourselves on staying ahead of occurrences in the marketplace, which is why we have already begun evaluating next steps. We are currently reviewing all loans, derivatives and affected products to ensure that the utmost care is taken. We want to assure you that we are doing our due diligence and will continue to be transparent about how this will affect you.