The LIBOR interest rate benchmark will be phased out at the end of 2021. As such, financial institutions cannot rely on LIBOR being available after that time, and will have to identify a suitable alternative index.
As we continue to transition, and commence implementation, SVB Private will use this webpage to keep you up-to-date on the changes, as they are known.
What is LIBOR?
LIBOR stands for the London Interbank Offered Rate, and it is the most prevalent floating rate index in the world. LIBOR is determined daily based on the representations of certain large, international banks regarding what they believe they would have to pay to borrow unsecured funds from each other on the London interbank lending market. US Dollar LIBOR is calculated from an average of 18 bank submissions after excluding the four highest and lowest submissions.
If you have a loan with a variable interest rate at SVB Private, including Adjustable Rate Mortgages on residential property, commercial loans and personal loans, your rate may currently be determined by the LIBOR index, plus a fixed margin.
Why is LIBOR being replaced?
In recent years, LIBOR has been perceived as a subjective index, as the Representation Panel is not required to provide data or rationale as to the rate they chose. Moreover, a well-publicized scandal involving the manipulation of LIBOR arose in 2012, which included both reporting low rates to make a bank look stronger than it was, and reporting false rates to profit on LIBOR-based financial products.
While not yet confirmed, an alternative index, called the Secured Overnight Financing Rate (SOFR), is rapidly being recognized in the industry, as well as by agencies such as Fannie Mae and Freddie Mac for early adoption. More to follow on this in coming updates.
How and when does this change impact me?
If you currently have loan products based on LIBOR, your interest index will change, and as a result, your monthly payment might change as a result of this transition. Well before this index is no longer applicable, SVB Private will advise affected clients of the replacement index, how it works and what to expect. Every effort will be made to ensure the real impact is minimized to the extent possible.
What do I need to do?
Review your loan documents to understand if your facilities are impacted: loan documents, including the note and mortgage or deed of trust, will provide detail as to whether the interest rate is fixed or adjustable. If it’s adjustable, the loan documents will identify and describe which index is used to calculate your interest rate.
Please check back to this page for updates.
Who do I contact if I have questions?
You can always speak directly with your relationship manager if you have questions specific to your account(s).