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    The global transition away from LIBOR

    What you need to know about the June 30, 2023, cessation of LIBOR and SVB's transition plans

    What's happening?

    Regulators called for the global financial industry to transition away from the London Interbank Offered Rate, also known as LIBOR to new alternative reference rates (ARRs).

    LIBOR is a set of benchmark interest rates that major global banks use to price a wide range of products, including corporate loans, derivatives, residential mortgages, student loans, corporate bonds, and other securities.

    SVB is committed to helping you understand the new rates and how these changes may impact your loan or other products in the future.

    SVB will continue to navigate through the industry cessation of LIBOR and on to the new ARRs, and will focus on migrating all remaining LIBOR-based deals.

    Please refer to the FAQs below for more information about the transition away from LIBOR. For further detail on how the transition away from LIBOR may impact you specifically, please discuss with your financial and legal advisors. 


    Background

    These announcements serve to cease publication of the following LIBOR tenors:

    Cessation of LIBOR rates
    (i) all GBP, EUR, CHF and JPY LIBOR settings, and the 1 Week and 2 Month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021; and

    (ii) the Overnight and 1, 3, 6 and 12 Month USD LIBOR settings immediately following the LIBOR publication on June 30, 2023.


    Where can I find additional information? 

    We will continue to update this page as new information is received. SVB clients may submit questions to the email address on this page and/or reach out to your relationship manager with any questions you may have.

    FAQs

    What is LIBOR?

     
    LIBOR is a set of benchmark interest rates intended to represent the level at which major global banks borrow from and lend to one another in the international interbank market for short-term loans.

    Why is LIBOR going away?

     
    LIBOR is based on transactions between banks that don't happen as often as they did in the past, and has also proved to be vulnerable to manipulation, as was demonstrated by the rate rigging scandal brought to light in 2012. Because of this, the UK governmental body that provides LIBOR quotes, the Financial Conduct Authority (FCA), publicly stated in 2017 that the FCA would not provide LIBOR quotes after the end of 2021. For more information, click here.

    What does this transition mean for SVB clients?

     
    If you have a commercial loan, derivative, residential mortgage, or tailored lending product from SVB, the interest rate may use LIBOR as a benchmark. This means that these products will need to be migrated away from LIBOR and indexed to an alternative rate. For further detail on how this may impact you, please discuss with your financial and legal advisors.

    What is SVB doing to prepare?

     
    Existing loans or products tied to LIBOR will be migrated to new ARRs.

    SVB has established a transition team to manage the transition for SVB clients and provide oversight. SVB also has representation in the ARRC, and our transition team is taking action to meet planned milestones. As the transition continues, we have developed guidelines and protocols for contracts and product offerings; and we’ll continue to update our clients.

    What alternative rates were recommended to replace LIBOR?

     
    In the U.S., LIBOR will be replaced by SOFR and in the U.K., by SONIA. Europe, Switzerland, and Japan also have recommended alternative reference rates. 


    LIBOR Rates Table.png

    How are SOFR/SONIA different from LIBOR?

     
    SOFR, the recommended replacement rate for USD LIBOR, is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. Per the ARRC, SOFR was recommended as the best alternative reference rate for USD LIBOR. For more information on SOFR, click here.

    SONIA, the recommended replacement rate for GBP LIBOR, measures the rate paid by banks on overnight funds. It is calculated as a trimmed means of rates paid on overnight unsecured wholesale funds. Per the Sterling RFR Working Group, SONIA is robust because it is anchored in active, liquid underlying markets. For more information on SONIA, click here.

    Who are the relevant industry bodies, or Working Groups, providing guidance related to the transition?

     

    Different industry bodies, or industry working groups were established under the sponsorship of the relevant regulatory bodies to recommend Alternative Reference Rates (ARRs) to replace the different existing forms of LIBOR and provide guidance on the transition away from LIBOR. Several of the working groups relevant to SVB clients are as follows:

    What does the ARRC do?

     
    The ARRC is a group of private-market participants convened to help ensure a successful transition from USD LIBOR to a more robust reference rate, its recommended alternative, the Secured Overnight Financing Rate (SOFR). It is comprised of a diverse set of private-sector entities, each with an important presence in markets affected by USD LIBOR, and a wide array of official-sector entities, including banking and financial sector regulators, as ex-officio members. For more information about the ARRC, click here.

    What does the Working Group on Sterling Risk-Free Reference Rates do?

     
    The Sterling RFR Working Group is an industry group that was established in 2015 to develop alternative Risk Free Rates (RFRs) for use instead of LIBOR-in the U.K., and is sponsored by the U.K. Financial Stability Board. For more information on the Sterling RFR Working Group, click here.

    What is fallback language?

     
    All agreements between SVB and its clients that have LIBOR as a reference rate will need to have "fallback" language inserted into them to address what happens when LIBOR ceases to be available. Insertion of fallback language is recommended by the ARRC, the Financial Stability Board, other working groups, and regulatory bodies, including the U.S. Federal Reserve Board and the Federal Deposit Insurance Corporation. Addressing existing agreements prior is part of an imperative to avoid a market disruption when LIBOR is no longer available. For more information on fallback language click here.

    Other resources

    Please refer to the resources section below for further information and industry-wide updates.

    The below resource links are not affiliated with SVB and are provided for information and educational purposes only. Any opinions and/or views expressed do not necessarily reflect the opinions and/or views of SVB.

    Central Banks &
    Working Groups:


    US:
    Federal Reserve Bank of New York (FRBNY) Alternative Reference Rate Committee (ARRC)

    UK:
    Bank of England Working Group on Sterling Risk Free Rates

    EU:
    European Central Bank (ECB) Working Group on Euro Risk Free Rates

    SWITZERLAND:
    Swiss National Bank National Working Group on Swiss Franc Reference Rates

    JAPAN:
    Bank of Japan (BOJ) Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks

    Industry Bodies:

    International Swaps and Derivatives Association (ISDA)

    Questions?

    SVB will continue to provide clients with helpful information throughout the transition process, so be on the lookout for more from us. In the meantime, if you have a question about the LIBOR transition that was not addressed above, please submit your question to LIBOR.Transition@SVB.com.