One of the primary criticisms of LIBOR is that it is increasingly based on estimates submitted by panel banks, which has led to a lack of transparency and volatility, and may make it a less representative rate as time passes. Many industry participants recognize the need for a reference rate that reflects market level interest rates and is rooted in actual trading activity.
As of December 31, 2021, panel banks will no longer be required to submit LIBOR data. LIBOR one-week and two-month USD LIBOR rates will no longer be published after December 31, 2021. All other tenors will cease publication on June 30, 2023.
In 2019, Columbia Bank established a LIBOR Transition Working Group to plan for the phasing out of LIBOR. The Working Group is an enterprise-wide group across different areas, business lines, and geographical locations. This team is responsible for the overall project scope, timeline and execution of a smooth transition.
For an alternative rate, SOFR – the Secured Overnight Financing Rate – is being considered as an alternative to the USD LIBOR. In addition to SOFR, Columbia Bank continues to evaluate other indexes as alternatives to LIBOR including Ameribor, and Bloomberg Short Term Bank Yield (BSBY).
Learn more about SOFR.
Any floating-rate product currently referencing LIBOR is affected, including: Commercial loans, Commercial Real Estate loans, and Single-Family ARMs. The LIBOR Transition Working Group is evaluating each product and taking steps to ensure a smooth transition from LIBOR for our clients.
Fallback language is contractual provisions that specify the trigger events for a transition to a replacement rate, what the new rate will be, and the spread adjustment to align the replacement rate with the benchmark being replaced – in this case, USD LIBOR.
As loans mature, new contracts will include fallback language and after December 31, 2021, they will need to be transitioned to a new index to address the cessation of LIBOR.
Please contact your banker for more details.
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