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    The global transition away from LIBOR

    What you need to know about the cessation of LIBOR and SVB's transition plans

    What's happening?

    Regulators called for the global financial industry to transition away from the London Interbank Offered Rate, also known as LIBOR to new alternative reference rates (ARRs). 

    LIBOR is a set of benchmark interest rates that major global banks use to price a wide range of products, including corporate loans, derivatives, residential mortgages, student loans, corporate bonds, and other securities.  

    SVB is committed to helping you understand the new rates and how these changes may impact your loan or other products in the future.  

    SVB will continue to navigate through the industry cessation of LIBOR and on to the new ARRs, and will focus on migrating all remaining LIBOR-based deals throughout 2022. 

    Please refer to the FAQs below for more information about the transition away from LIBOR. For further detail on how the transition away from LIBOR may impact you specifically, please discuss with your financial and legal advisors. 


    SVB now offers alternative reference rates globally 

    The end of 2021 saw cessation of nearly all global LIBOR rates including the 1-week and 2-month USD LIBOR tenors. SVB is prepared to offer products tied to ARRs for clients today across USD (SOFR), GBP (SONIA), and EUR (€STR). 

    For USD loans, SVB supports Term SOFR (1-,3-,6-month tenors) and Daily Simple SOFR conventions. In 2022, focus will be on legacy contracts and continued migration away from LIBOR to ARRs.

      Cessation Date   Proposed ARR  SVB Supported Conventions 
    USD LIBOR  12/31/2021   1-week & 2-month tenors 

    6/30/2023   overnight, 1-,3-,6-  & 12-month tenors     		 Secured Overnight Financing Rate (SOFR)  Term SOFR (1-, 3-, and 6-month tenors) 

    Daily Simple SOFR  
    GBP LIBOR  12/31/2021  Sterling Overnight Index Average (SONIA)   SONIA Compounded Daily in Arrears  
    Euro LIBOR (Not Euribor)  12/31/2021  Euro Short-term Rate (€STR) 

    €STR Compounded in Arrears

     







          




    A number of important LIBOR transition-related announcements were released on March 5, 2021, by the UK Financial Conduct Authority (FCA) and approved by the Alternative Reference Rates Committee (ARRC), relating to confirmation of the     cessation dates for LIBOR  and spread adjustments. 

    These announcements serve to fix the spread adjustment to be used for clients migrating under the industry standard fallback language; and are intended to accelerate market participants’ move away from LIBOR. 

    The fixing of the spread adjustment provides an economic basis from which to transition LIBOR to SOFR on existing deals. Further information will be provided to clients with existing products having LIBOR pricing over the coming months. 


    Background

    These announcements serve to cease publication of the following LIBOR tenors:

    Cessation of LIBOR rates
    (i) all GBP, EUR, CHF and JPY LIBOR settings, and the 1 Week and 2 Month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021; and

    (ii) the Overnight and 1, 3, 6 and 12 Month USD LIBOR settings immediately following the LIBOR publication on June 30, 2023.


    Where can I find additional information? 

    We will continue to update this page as new information is received. SVB clients may submit questions to the email address on this page and/or reach out to your relationship manager with any questions you may have.

    Please see below for links to statements and press releases from the FCA, ISDA, IBA, and Bloomberg.

    Links to statements

    FCA press release: FCA Announcements on the end of LIBOR

    FAQs

    What is LIBOR?

     
    LIBOR is a set of benchmark interest rates intended to represent the level at which major global banks borrow from and lend to one another in the international interbank market for short-term loans. For more information about LIBOR and its cessation, click here, and discuss with your financial and legal advisors.

    Why is LIBOR going away?

     
    LIBOR is based on transactions between banks that don't happen as often as they did in the past, and has also proved to be vulnerable to manipulation, as was demonstrated by the rate rigging scandal brought to light in 2012. Because of this, the UK governmental body that provides LIBOR quotes, the Financial Conduct Authority (FCA), publicly stated in 2017 that the FCA would not provide LIBOR quotes after the end of 2021. For more information, click here.

    What does this transition mean for SVB clients?

     
    If you have a commercial loan, derivative, residential mortgage, or tailored lending product from SVB, the interest rate may use LIBOR as a benchmark. This means that these products will need to be migrated away from LIBOR and indexed to an alternative rate before LIBOR's cessation at the end of 2021. For further detail on how this may impact you, please discuss with your financial and legal advisors.

    What is SVB doing to prepare?

     
    SVB has developed and begun to enact a plan to eliminate all LIBOR exposure well in advance of the end of 2021 by migrating clients with existing loans or products tied to LIBOR to new ARRs and for new loans or products, offering products and loans that are indexed to ARRs and eventually ceasing to offer products and loans that are indexed to LIBOR.

    SVB has established a transition team to manage the transition for SVB clients and provide oversight. SVB also has representation in the ARRC, and our transition team is taking action to meet planned milestones. As the transition evolves and we develop guidelines and protocols for contracts and product offerings, we’ll continue to update our clients.

    How are SOFR/SONIA different from LIBOR?

     
    SOFR, the recommended replacement rate for USD LIBOR, is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. Per the ARRC, SOFR was recommended as the best alternative reference rate for USD LIBOR. For more information on SOFR, click here.

    SONIA, the recommended replacement rate for GBP LIBOR, measures the rate paid by banks on overnight funds. It is calculated as a trimmed means of rates paid on overnight unsecured wholesale funds. Per the Sterling RFR Working Group, SONIA is robust because it is anchored in active, liquid underlying markets. For more information on SONIA, click here.

    Who are the relevant industry bodies, or Working Groups, providing guidance related to the transition?

     
    Different industry bodies, or industry working groups were established under the sponsorship of the relevant regulatory bodies to recommend Alternative Reference Rates (ARRs) to replace the different existing forms of LIBOR and provide guidance on the transition away from LIBOR. The working groups relevant to SVB clients are as follows:

    What does the ARRC do?

     
    The ARRC is a group of private-market participants convened to help ensure a successful transition from USD LIBOR to a more robust reference rate, its recommended alternative, the Secured Overnight Financing Rate (SOFR). It is comprised of a diverse set of private-sector entities, each with an important presence in markets affected by USD LIBOR, and a wide array of official-sector entities, including banking and financial sector regulators, as ex-officio members. For more information about the ARRC, click here.

    What does the Working Group on Sterling Risk-Free Reference Rates do?

     
    The Sterling RFR Working Group is an industry group that was established in 2015 to develop alternative Risk Free Rates (RFRs) for use instead of LIBOR-in the U.K., and is sponsored by the U.K. Financial Stability Board. For more information on the Sterling RFR Working Group, click here.

    What is fallback language?

     
    All agreements between SVB and its clients that have LIBOR as a reference rate will need to have "fallback" language inserted into them to address what happens when LIBOR ceases to be available. Insertion of fallback language is recommended by the ARRC, the Financial Stability Board, other working groups, and regulatory bodies, including the U.S. Federal Reserve Board and the Federal Deposit Insurance Corporation. Addressing existing agreements prior to the end of 2021 is part of an imperative to avoid a market disruption when LIBOR is no longer available. For more information on fallback language click here.

    What is the timeline for the transition?

     
    LIBOR will not be quoted or available after December 31, 2021. The ARRC has recommended no new USD LIBOR commercial loans be issued after June 30, 2021. The Sterling RFR Working Group has recommended no new GBP LIBOR commercial loans be issued after March 31, 2021. SVB intends to follow these recommendations and will offer alternative rates beginning on these dates or earlier. In addition, for existing products, SVB will remediate all existing agreements with our clients that reference LIBOR and mature or terminate after December 31, 2021. As SVB works to build out a more detailed timeline, relevant dates for specific milestones will be shared with clients.

    Other resources

    Please refer to the resources section below for further information and industry-wide updates.

    The below resource links are not affiliated with SVB and are provided for information and educational purposes only. Any opinions and/or views expressed do not necessarily reflect the opinions and/or views of SVB.

    Central Banks &
    Working Groups:


    US:
    Federal Reserve Bank of New York (FRBNY) Alternative Reference Rate Committee (ARRC)

    UK:
    Bank of England Working Group on Sterling Risk Free Rates

    EU:
    European Central Bank (ECB) Working Group on Euro Risk Free Rates

    SWITZERLAND:
    Swiss National Bank National Working Group on Swiss Franc Reference Rates

    JAPAN:
    Bank of Japan (BOJ) Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks

    Industry Bodies:

    International Swaps and Derivatives Association (ISDA)
    International Capital Market Association (ICMA)
    UK Finance
    Loan Market Association (LMA)
    Loan Syndication and Trading Association (LSTA)
    Asia Pacific Loan Market Association (APLMA)
    Treasury Markets Association (TMA)
    Japanese Bankers Association (JBA)

    Official Sector:

    Financial Stability Board (FSB)
    International Organization of Securities Commissions (IOSCO)
    Financial Industry Regulatory Authority (FINRA)
    U.S. Commodity Futures and Trading Commission (CFTC)
    U.S. Securities and Exchange Commission (SEC)
    U.K. Financial Conduct Authority (FCA)
    Hong Kong Monetary Authority (HKMA)
    Monetary Authority of Singapore (MAS)

    Questions?

    SVB will continue to provide clients with helpful information throughout the transition process, so be on the lookout for more from us. In the meantime, if you have a question about the LIBOR transition that was not addressed above, please submit your question to LIBOR.Transition@SVB.com.