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Johnson Financial Group is actively monitoring industry efforts, the market and best practices to ensure an orderly transition for our clients and teams. Our advisors will provide individual relationship guidance for each client impacted by this transition.

LIBOR Transition Background

  • LIBOR (London Inter-Bank Offered Rate) was the premier set of benchmark rates for financial contracts around the world. The rates were set in serveral major currencies for terms from overnight to one-year. In Q4 2020, the New York Fed estimated that US LIBOR rates alone were included in $223 trillion of financial contracts, including: loans, swaps, bonds, credit cards, adjustable-rate mortgages, and other products offered by financial institutions.
  • LIBOR was replaced because regulators globally advocated that markets move away from LIBOR to a more reliable index.
  • Often rates were based on estimates provided by some of the largest banks in the world.
  • This led to charges of rate manipulation and price fixing. 
  • The Federal Reserve convened the Alternative Reference Rate Committee (ARRC) which recommended SOFR (the Secured Overnight Funding Rate) for use in the US as a replacement for US LIBOR rates. This Fed Reserve published rate is based on daily transactions in the Treasury repurchases market and is a credit risk-free rate. 

Key dates in US for transition away from LIBOR

NOVEMBER 30, 2020

The Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency provided guidance that issuing new LIBOR contracts after December 31, 2021 could present safety and soundness risks to banks. 

JULY 29, 2021

The Alternative Reference Rate Committee or "ARRC", a Federal Reserve led private-public partnership, recommended CME Term SOFR as a replacement for LIBOR in business loans in the U.S.

BEYOND DECEMBER 31,2021

No new or renewing contracts can be tied to US LIBOR rates. 

BY JULY 1, 2023

Legacy contracts tied to US LIBOR rates will have to transition to another rate.

What can clients expect from Johnson Financial Group?

We are working individually and closely with clients that will be affected by the transition, especially those with LIBOR exposures that mature after June 30, 2023, to identify the next step in their financial journey. 

Our Relationship Managers will address each customer’s LIBOR transition on a case-by-case basis to identify a solution that works best for their financial situation.

  • LIBOR was a set of credit sensitive term interest rates at which large money center banks lend to each other for short-term loans.
  • 1 month US LIBOR was used at Johnson Financial Group & the banking industry in most large variable rate commercial loans and customer facing interest rate swaps. 
  • The number & dollar amount of actual interbank transactions that LIBOR is based on is limited.
  • This lack of transparency has led to charges of rate manipulation in the past.
  • Effective 1/1/2022, US regulators require all new and renewed transactions (loans, swaps, etc.) to not include LIBOR based rates.
  • Johnson Financial Group will use the 1-month CME Term SOFR rate as our primary replacement rate for LIBOR based commercial loans starting in December of 2021. 
  • Existing LIBOR based transactions have until 6/30/23 to transition to another index/rate.
  • SOFR (Secured Overnight Funding Rate) is an overnight credit risk-free rate based on overnight repurchase (repo) transactions and is published by the New York Fed. The underlying transactions are deep, liquid and difficult to manipulate. 
  • CME Term SOFR is a recently approved forward looking set of term rates established by the Chicago Mercantile Exchange (CME). 
  • CME Term SOFR has similar conventions to LIBOR and will be operationally easier to implement vs. rates based on daily SOFR.
Have questions?

Contact Your Commercial Banking Advisor to discuss your unique situation.

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