The end of Libor

Libor, for London Interbank Offered Rate, is an index calculated and published by the ICE Benchmark Administration often used in international commercial agreements.


The purpose of this index is to reflect the average rate at which sixteen major London-based international banks makes interbank loans. It is calculated on the basis of submissions made by these banks[1].


At the end of January, the Financial Conduct Authority (FCA) estimated that contracts using Libor were worth $260 trillion[2].


Libor is used in many contracts, especially for payments, to calculate interest on arrears.

The FCA announced on March 5, 2021, the end dates of Libor applied to the Pound Sterling, Euro, Swiss Franc and Yen for December 31, 2021.


The end of the use of Libor for the Dollar is announced for June 30, 2023[3].


This end comes after revelations in 2012 of cartels between several of the Libor participants to submit understated estimates compared to the actual rates these banks would have faced[4]. This agreement helped mask the funding difficulties of the banks at that time.


After a consultation, the FAC published recommendations on the Libor system under which:

- the rate was to be set no longer on the basis of reporting, but on actual transactions,

- a clear conflict of interest policy for each bank should be put in place,

- the FSA would exercise new control functions[5].


It is therefore necessary to review the current contracts in order to provide for the drafting of an amendment.


The amendment would provide for a transfer, in due course, between the Libor reference rate and its future replacements which will be the SOFR for the Dollar, the €STR for the Euro, the SONIA for the Pound Sterling, the SARON for the Swiss Franc and the TONAR for the Japanese Yen[6].


Other means of calculating delayed payment interests rates have also been used by the parties to commercial agreement and can be developed.

[1] https://www.theice.com/iba/libor#calculation [2] https://www.fca.org.uk/news/speeches/libor-are-you-ready-life-without-libor-end-2021 [3] https://www.fca.org.uk/publication/documents/future-cessation-loss-representativeness-libor-benchmarks.pdf [4] https://ec.europa.eu/commission/presscorner/detail/fr/IP_13_1208 [5] FSA finalises proposals for the regulation and supervision of benchmarks | FCA [6] https://www.fca.org.uk/markets/libor