1. What is LIBOR and why is it going away?
The London Interbank Offered Rate, or "LIBOR," is a
reference rate commonly used in a broad range of financial
contracts. In fact, it serves as a reference rate for tens of
millions of contracts worth about $200 trillion in the US
alone1. LIBOR is hardwired into bilateral loans,
syndicated loans, securitizations, adjustable-rate mortgages,
derivatives and more. In short, it's embedded into the global
financial market in a systemic way.
But to understand why it's going away, you should understand
what it actually is. LIBOR is the forward-looking average rate,
computed daily, at which a contributor bank (of which there are 17
for USD LIBOR) can obtain unsecured financing in the London
interbank market, in a process overseen by the ICE Benchmark
Administration, or IBA. It is produced for the US Dollar, British
Pound, Euro, Swiss Franc, and Japanese Yen, and plays a large role
in international financial markets. But ever since
