Overview

ICE LIBOR™ (also known as LIBOR™) is a widely-used benchmark for short-term interest rates.

The LIBOR methodology is designed to produce an average rate that is representative of the rates at which large, leading internationally active banks with access to the wholesale, unsecured funding market could fund themselves in such market in particular currencies for certain tenors.

LIBOR is currently calculated for five currencies (USD, GBP, EUR, CHF and JPY) and for seven tenors in respect of each currency (Overnight/Spot Next, One Week, One Month, Two Months, Three Months, Six Months and 12 Months). This results in the publication of 35 individual rates (one for each currency and tenor combination) every applicable London business day.

Used globally, LIBOR is often referenced in derivative, bond and loan documentation, and in a range of consumer lending instruments such as mortgages and student loans. It is also used as a gauge of market expectation regarding central bank interest rates, liquidity premiums in the money markets and, during periods of stress, as an indicator of the health of the banking system.

Please read ICE Benchmark Administration’s (IBA) benchmark and other information notice and disclaimer here.

Please also read the sections below on the Future of LIBOR and Information about the UK Government Statement Regarding LIBOR Transition and Intended Legislation.

The Future of LIBOR

In July 2017, the then Chief Executive Officer of the UK Financial Conduct Authority (the FCA), Andrew Bailey, gave a speech in which he announced that it was the FCA’s intention that it would no longer be necessary for the FCA to “persuade, or compel, banks to submit to LIBOR” after end-2021. The FCA and other official sector bodies have made several announcements since 2017 regarding the need to transition from LIBOR to alternative rates, and market participants have been strongly advised of the need to ensure they are prepared for this transition by the end of 2021.

To facilitate the industry’s progress towards an orderly adoption of alternative rates into the financial system, IBA has launched the ICE Term RFR Portal and published a paper showing how IBA can support the development of term structures for alternative rates.

IBA has also engaged with LIBOR Contributor Banks, other global banks and end-users of LIBOR regarding LIBOR transition, and the potential for the continued publication of certain widely-used LIBOR settings after end-2021, if necessary to provide a ‘safety-net’ for users with outstanding LIBOR-linked contracts that are impossible or impractical to modify (“tough legacy contracts”). This engagement included a LIBOR-usage survey, which was open to all users of LIBOR and was designed to identify the most widely-used LIBOR settings for which users would like to see IBA work with global banks to potentially support publication after end-2021. The survey closed in February 2019, and the results have been published on IBA’s website.

IBA is using the results of the survey and its other outreach work to engage with globally active banks to seek their support to potentially continue to publish certain widely-used LIBOR settings after end-2021, if necessary to provide a safety-net for users with tough legacy contracts. Any such settings will need to be compliant with relevant regulations and in particular those regarding representativeness.

There can be no certainty or guarantee that IBA will be able to obtain such support or publish any LIBOR settings after end-2021. Work on the possible continued publication of certain LIBOR settings is not intended as an alternative to the transition to alternative rates.

Information about the UK Government Statement Regarding LIBOR Transition and Intended Legislation

The UK Government announced on 23 June 2020, that it intends to legislate to ensure that the FCA has the appropriate regulatory powers to manage and direct any wind-down period prior to eventual LIBOR cessation.

The new regulatory powers would enable the FCA to direct a methodology change for LIBOR, in circumstances where the FCA has found that:

• The benchmark is not representative of the market it seeks to measure;
• The benchmark’s representativeness will not be restored; and
• Action is necessary to protect consumers and/or to ensure market integrity and it is feasible for the administrator to change the methodology in the way required.

Existing law would also be strengthened to prohibit the use of LIBOR where its representativeness will not be restored, whilst giving the FCA the ability to specify limited continued use in legacy contracts.

The FCA has welcomed the announcement and proposes to publish statements of policy on its approach to potential use of these powers following further engagement with stakeholders in the UK and internationally. In particular, the FCA has also noted that it will seek stakeholder views on possible methodology changes based on the alternative risk free rates chosen in each of the LIBOR currency jurisdictions, and on the consensus already established in international and UK markets on a way of calculating an additional fixed credit spread that reflects the expected difference between LIBOR and risk-free interest rates.

Both the UK Government and the FCA advise that market participants should continue to focus on active transition of legacy contracts on terms that they themselves agree with their counterparties, because this is the only way to have certainty as to contractual continuity and control over contractual terms. They caution that parties who rely on regulatory action, enabled by the proposed legislation, will not have control over the economic terms of that action. Moreover, regulatory action may not be able to address all issues or be practicable in all circumstances, for example where a methodology change is not feasible, or would not protect consumers or market integrity.

In a July 2020 speech entitled “Libor: Entering the Endgame”, Andrew Bailey, now Governor of the Bank of England, also noted that those that decide to rely on regulatory action, enabled by the legislation the UK Government plans to bring forward, will not have control over the economic terms of that action. He advised that the FCA will consult on what the action may be taken and what the limitations of any solution may be for the ‘tough legacy’, but cautioned that:

• Any solution will only be designed for legacy contracts (i.e. will not be available for new business) and so is not an alternative to moving new activity away from LIBOR as soon as is prudent;
• Any use of the powers vested in the FCA will not provide a solution in all circumstances, in particular if the relevant alternative inputs are not available to the benchmark administrator; and
• Given the challenges in creating a robust dynamic credit spread, the market would need to be prepared for a fixed proxy credit spread adjustment based on historical averages.

Also in July 2020, Edwin Schooling Latter, Director Markets and Wholesale Policy at the FCA, delivered a speech entitled 'The Latest in LIBOR Transition, The Path Forward'. The speech is available here.

Calculation & Publication

Each LIBOR™ calculation is currently based on input data contributed by a panel of between 11 and 16 Contributor Banks for each of the five LIBOR™ currencies. Each Contributor Bank contributes input data for all seven LIBOR tenors in every currency in respect of which it is on a panel.

Each currency panel is composed with reference to the LIBOR Contributor Bank Criteria, which are designed so that the contributed input data is able to produce a rate that is representative of the economic reality.

Each Contributor Bank determines its input data contributions pursuant to the ICE LIBOR Output Statement in order to produce a rate that is anchored in Contributor Banks’ wholesale, unsecured funding transactions to the greatest extent possible, with a waterfall to enable a rate to be published in all market circumstances.

LIBOR is calculated in accordance with the LIBOR Methodology. The published rate in respect of each currency and tenor combination is the arithmetic mean of each Contributor Bank’s contributions in respect of that currency and tenor (after trimming upper and lower values), rounded to five decimal places. Each Contributor Bank's contribution carries an equal weight in the calculation, subject to the trimming.

Details are shown in the table below:

If IBA receives fewer than the expected number of submissions in respect of a particular currency, the ICE LIBOR Reduced Submissions Policy will apply to those rates.

LIBOR is normally published for each currency and tenor combination at 11:55 am London time on each applicable London business day.

Panel Composition

BANK/CCY	USD	GBP	EUR	CHF	JPY
Bank of America N.A. (London Branch)
Barclays Bank plc
BNP Paribas SA (London Branch)
Citibank N.A. (London Branch)
Cooperatieve Rabobank U.A.
Crédit Agricole Corporate & Investment Bank
Credit Suisse AG (London Branch)
Deutsche Bank AG (London Branch)
HSBC Bank plc
JPMorgan Chase Bank, N.A. (London Branch)
Lloyds Bank plc
Mizuho Bank, Ltd.
MUFG Bank, Ltd
National Westminster Bank plc
Royal Bank of Canada
Santander UK Plc
Société Générale (London Branch)
Sumitomo Mitsui Banking Corporation Europe Limited
The Norinchukin Bank
UBS AG

Governance & Oversight

IBA maintains an oversight committee for LIBOR, which has responsibility for:

• Reviewing the methodology, scope and definition of the benchmark (including assessing its underlying market and usage);
• Overseeing any changes to the benchmark; and
• Overseeing and reviewing the LIBOR Code of Conduct.

The committee has broad market representation, being comprised of Contributor Banks, benchmark users, market infrastructure providers, independent non-executive directors of IBA, and other relevant experts. Representatives from the Board of Governors of the Federal Reserve System, the Swiss National Bank and the Bank of England also sit on the committee as observers.

Oversight Committee Meeting Public Minutes

Publication Days

LIBOR is published on each London business day for all currencies and tenors, except as described below.

There is no LIBOR publication in any currency or tenor if the date is a public holiday in London.

Where a valid publication day is a public holiday in the major financial centre of a currency, there is no publication in the Overnight tenor only, for that currency. All other tenors are published as normal. This rule concerns only the Euro and US Dollar, since Yen and Swiss Franc do not have an Overnight tenor.

The following tables set out the relevant holidays for the different currencies and tenors. Specific dates for each year are available on the Holiday Calendars page. The Holiday Calendars also list the designated Value Dates, by currency and tenor, for each benchmark date.