LIBOR Transition
As the industry and Raymond James Bank transition away from using LIBOR, here’s what you need to know and understand.
LIBOR Transition
As the global finance industry, including Raymond James Bank, transitions away from using LIBOR, the following is an explanation of what’s happening.
Starting January 1, 2022, loans can no longer be issued, refinanced or adjusted using the London Interbank Offered Rate (LIBOR). LIBOR is a benchmark rate used to calculate interest in various types of loans, such as securities based lines of credit. As a result of this industry change, Raymond James Bank will stop using LIBOR by the end of 2021, which will affect originated and modified loans.
LIBOR will be replaced by the Secured Overnight Financing Rate (SOFR), which was recommended by the Alternative Reference Rates Committee (ARRC) convened by the Federal Reserve to help ensure a successful transition to a more robust reference rate.
For additional details on LIBOR, SOFR and this transition, please review the FAQs below.
If you have additional questions, you can contact your financial advisor and their banking consultant.
FREQUENTLY ASKED QUESTIONS
1. WHAT IS LIBOR AND WHY IS THE INDUSTRY TRANSITIONING AWAY FROM IT?
LIBOR has been a primary benchmark since the early 1980s and has played a critical role as a reference rate for a variety of financial products worldwide. Yet, because it was calculated largely on forward-looking estimates and not actual transactions, LIBOR is being retired in favor of a rate based on transactions across a larger market considered to be more indicative of short-term borrowing. On July 29, 2021, the ARRC recommended a more accurate rate, SOFR, as a replacement benchmark for LIBOR. Beginning January 1, 2022, LIBOR can no longer be used in loan origination and/or modification.
2. WHAT IS SOFR?
SOFR is based on actual overnight transactions in U.S. dollar-based financial markets. Because of this, the methodology and calculations are transparent and SOFR is a secured rate, meaning collateral is exchanged when the borrowing occurs. The rate will be published by the Federal Reserve Bank of New York and will be based on transactions in three markets: the general, bilateral and tri-party repurchase markets.
3. HOW DO LIBOR AND SOFR COMPARE?
| LIBOR | SOFR |
|---|---|
| Unsecured rate | Secured rate, meaning collateral is exchanged when the borrowing occurs |
| Rate includes credit risk component | Rate excludes credit risk component |
| Forward-looking, based on a survey of market participants | Backward-looking, based on observed market transactions |
4. WHICH TERM OF SOFR WILL RAYMOND JAMES BANK USE?
Raymond James Bank has opted to use the CME Group’s Term 1-month SOFR, as recommended by the ARRC1.
The rate will be published on CME Group’s public website, here1.
Resources
- Alternative Reference Rates Committee (newyorkfed.org)1
- ARRC Rate Recommendation Press Release1
- CME Group website1, 2
Products, terms and conditions subject to change. Subject to standard credit criteria.
1The information provided at the link is from a third party whose opinions are not that of Raymond James Bank.
2Please note CME Group's website functionality is supported by Google Chrome.
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