When and why is LIBOR going away?
LIBOR is based on transactions among banks that don’t occur as often as they did in prior years, making the index less reliable and credible. The UK regulator that oversees the LIBOR panel has stated that it cannot guarantee LIBOR’s availability beyond the end of 2021. Across the globe, governments and financial institutions have been working to identify alternatives.
What will replace LIBOR?
In the U.S., the Federal Reserve has convened a working group called the Alternative Reference Rates Committee (ARRC) to help facilitate the likely transition away from LIBOR. The ARRC is comprised of a diverse set of private sector entities, and a wide array of official sector entities (including regulators such as the CFPB) as non-voting ex-officio members. The ARRC has recommended an index called the Secured Overnight Financing Rate (SOFR) as its recommended alternative to LIBOR and has published a transition plan to promote the use of SOFR on a voluntary basis.
Source: The Consumer Finance Protection Bureau.