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Tom Wipf

Libor’s Endgame in the U.S. Requires Urgent Preparation

The public and private sectors must work together to transition all new activity to SOFR by the end of this year.

It will be here sooner than you think.

It will be here sooner than you think.

Photographer: Andy Lyons/Getty Images

With many headlines competing for the financial world’s attention already this year, it would be easy to overlook one of the most significant changes that will take place in 2021: the end of Libor in new contracts. Once dubbed “the world’s most important number,” Libor is a benchmark interest rate with mind-boggling reach, impacting trillions of dollars in business loans, student loans, mortgages and more. Although Libor’s use is pervasive, the transactions on which its publication is based are limited, and the rate needs to be replaced expeditiously this year.

Regulators and Libor’s administrator recently outlined an endgame for the rate. Two critical milestones in making that endgame a reality were reached on Monday: the implementation of a protocol that will fortify derivatives contracts and the close of a consultation on how to move on with minimal disruption.