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 UK Financial Conduct Authority (FCA) announced its intention that it would no longer be necessary to persuade, or compel, banks to submit to LIBOR after December 31, 2021. The FCA and other official sector bodies have made several further statements regarding the need for market participants to prepare to transition from LIBOR to alternative rates by December 31, 2021.

Since July 2017, IBA has engaged with end-users, panel banks, the FCA and other official sector bodies regarding the potential for continuing certain widely-used LIBOR settings after December 31, 2021. This has included surveys of banks and end-users of LIBOR to identify the LIBOR settings that are most widely-used and for which users would like to see IBA work to seek an agreement with globally active banks to support publication after year-end 2021. The focus of this engagement has been on seeking to support transition by providing support for users with outstanding LIBOR-linked contracts that are impossible or impractical to modify before year-end 2021 (so-called “tough legacy” contracts).

IBA has been clear throughout its engagement that any such settings would need to be compliant with relevant regulations and in particular those regarding representativeness. IBA was also clear that, notwithstanding the results of the surveys and IBA’s associated engagement with the banks, there was no guarantee that any LIBOR settings would continue to be published after year-end 2021, and that users of LIBOR should not rely on the continued publication of any LIBOR settings when developing transition or fallback plans.

On December 4, 2020, following discussions with the FCA and other official sector bodies, and in accordance with procedures adopted pursuant to applicable benchmarks regulation, IBA published a consultation on its intention to cease the publication of:

1. the following LIBOR settings immediately following the LIBOR publication on Friday, December 31, 2021: :
• GBP LIBOR - all settings (overnight, 1 week, 1, 2, 3, 6 and 12 months);
• EUR LIBOR - all settings (overnight, 1 week, 1, 2, 3, 6 and 12 months);
• CHF LIBOR - all settings (spot next, 1 week, 1, 2, 3, 6 and 12 months);
• JPY LIBOR - all settings (spot next, 1 week, 1, 2, 3, 6 and 12 months);
• USD LIBOR - 1 week and 2 months settings; and
  
  
2. the following LIBOR settings immediately following the LIBOR publication on Friday, June 30, 2023:
• USD LIBOR - overnight and 1, 3, 6 and 12 months settings.

IBA consulted on these intended cessation dates because a majority of LIBOR panel banks had communicated to IBA that they would not be willing to continue contributing to the relevant LIBOR settings after such dates. As a result, IBA considered that it would be unable to publish the relevant LIBOR settings on a representative basis after such dates.

On March 5, 2021, IBA published a feedback statement for the consultation on its intention to cease the publication of LIBOR® settings. IBA received a broad of range of feedback from multiple stakeholders, both on the dates specified above and on the LIBOR transition process generally, including on matters beyond IBA’s remit as administrator of LIBOR.

As announced by IBA on March 5, 2021, in the absence of sufficient panel bank support and without the intervention of the FCA to compel continued panel bank contributions to LIBOR, it is not possible for IBA to publish the relevant LIBOR settings on a representative basis beyond the dates specified above for such settings. As a result of IBA not having access to input data necessary to calculate LIBOR settings on a representative basis beyond the dates specified above for such settings, IBA has to cease the publication of the relevant LIBOR settings on such dates, unless the FCA exercises its new powers (which are included in the Financial Services Act 2021 as amendments to the UK Benchmarks Regulation - see New FCA Powers to Impose Changes to LIBOR below) to require IBA to continue publishing such LIBOR settings using a changed methodology (also known as a “synthetic” basis).

The FCA has advised that it has no intention of using its new powers to require IBA to continue the publication of any EUR or CHF LIBOR settings, or the Overnight/Spot Next, 1 Week, 2 Month and 12 Month LIBOR settings in any other currency, beyond the above intended cessation dates for such settings, and that such settings will consequently cease immediately after such dates. The FCA has launched a consultation on using these new powers to require IBA to continue the publication of the 1 Month, 3 Month and 6 Month GBP and JPY LIBOR settings beyond December 31, 2021 on a “synthetic” basis (as explained further in the below section: New FCA Powers to Impose Changes to LIBOR). The FCA has also advised that it will continue to consider the case for using these powers to require IBA to continue the publication of the 1 Month, 3 Month and 6 Month USD LIBOR settings beyond June 30, 2023, on a “synthetic” basis. The FCA has noted that any LIBOR settings published on a “synthetic” basis would no longer be representative of the underlying market or economic reality the setting is intended to measure.

The FCA has confirmed to IBA, based on undertakings received from the panel banks, that it does not expect that any LIBOR settings will become unrepresentative before the dates set out above for each such setting (for cessation or for potential continued publication on a “synthetic” basis) (I.e. all currency panels are expected to remain as currently constituted for all LIBOR settings until year-end 2021, and Bank of America N.A. (London Branch), Barclays Bank plc, 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, MUFG Bank, Ltd, Royal Bank of Canada, SMBC Bank International plc, The Norinchukin Bank and UBS AG are expected to remain on the USD panel for the Overnight and 1, 3, 6 and 12 Months USD LIBOR settings until end-June 2023, with National Westminster Bank plc expected to leave the USD panel at year-end 2021).

Stakeholders who are interested as to statements relating to the cessation or unrepresentativeness of LIBOR for the purpose of contractual triggers for fallback rate arrangements should see the FCA statement issued on March 5, 2021. The FCA also published a further press release in relation to LIBOR cessation on the same day. Licensees should also consider communications received from IBA in relation to LIBOR.

New FCA Powers to Impose Changes to LIBOR

On 23 June 2020, the UK Government announced that it intended 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, in particular to help deal with “tough legacy” contracts. Such powers are included in the Financial Services Act 2021 as amendments to the UK Benchmarks Regulation. The UK Government has also stated that it intends to bring forward further legislation to supplement these measures by reducing the scope for uncertainty or litigation that may arise from the exercise of the powers.

The new regulatory powers included in the Financial Services Act 2021 enable the FCA, among other things, to designate a critical benchmark, such as LIBOR, to direct a methodology change so that such designated benchmark is published on a “synthetic” basis, in circumstances: (i) where the FCA has found that the benchmark is not representative of the market it seeks to measure or that the representativeness of the benchmark is at risk unless it considers that such representativeness can reasonably be restored and maintained and there are good reasons to do this; and (ii) where such action is necessary to protect consumers and/or to ensure market integrity.

The use of such a designated benchmark by UK supervised entities in regulated contracts would be prohibited, except that the FCA has the discretion to permit certain legacy use to further its market integrity or consumer protection objectives. The FCA also has the power to prohibit new use of a critical benchmark the provision of which is to cease.

Recognizing that there are some existing ‘tough legacy’ LIBOR contracts which are particularly difficult to amend ahead of the planned cessation of LIBOR, the FCA is proposing to take steps in relation to its new powers to help reduce disruption in these cases.

The FCA has published statements of policy in relation to using its powers to designate and require changes to a critical benchmark. The FCA has also recently conducted a consultation on how it proposes to use its new powers in relation to the use of critical benchmarks, which closed on June 17, 2021.

On June 24, 2021, the FCA launched a consultation in relation to its proposed decision to use its new powers to require IBA to continue the publication of the 1 Month, 3 Month and 6 Month GBP LIBOR settings and the 1 Month, 3 Month and 6 Month JPY LIBOR settings on a changed, “synthetic” basis after year-end 2021. The FCA is proposing to require that “synthetic” GBP LIBOR and “synthetic” JPY LIBOR are calculated using a forward-looking term version of the relevant alternative risk-free rate for that currency (i.e. the ICE Term SONIA Reference Rate (ICE TSRR), published by IBA, for GBP LIBOR, and the Tokyo Term Risk Free Rate (TORF), published by Quick Benchmarks Inc., for JPY LIBOR) plus the fixed ISDA spread adjustment published for the purposes of the ISDA IBOR Fallbacks Supplement and Protocol for the applicable LIBOR setting. The FCA has acknowledged that GBP LIBOR and JPY LIBOR settings published on such a changed, “synthetic” basis would no longer be representative of the underlying market and economic reality that such LIBOR settings are intended to measure. The FCA has asked for comments on the consultation paper by August 27, 2021, and has advised that it intends to confirm its final decisions as soon as practicable in Q4 2021. The FCA also aims to consult further in Q3 on a proposed decision on precisely what legacy use it will permit in respect of any “synthetic” GBP LIBOR and “synthetic” JPY LIBOR.

Please see the FCA’s LIBOR transition website for the latest information on how it intends to exercise its new regulatory powers in relation to LIBOR.

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 each 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
SMBC Bank International plc
Société Générale (London Branch)
The Norinchukin Bank
UBS AG

*The FCA has confirmed to IBA, based on undertakings received from the panel banks, that it does not expect that any LIBOR settings will become unrepresentative before the dates set out above for each such setting (for cessation or for potential continued publication on a “synthetic” basis) (I.e. all currency panels are expected to remain as currently constituted for all LIBOR settings until year-end 2021, and Bank of America N.A. (London Branch), Barclays Bank plc, 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, MUFG Bank, Ltd, Royal Bank of Canada, SMBC Bank International plc, The Norinchukin Bank and UBS AG are expected to remain on the USD panel for the Overnight and 1, 3, 6 and 12 Months USD LIBOR settings until end-June 2023, with National Westminster Bank plc expected to leave the USD panel at year-end 2021).

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 applicable 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.