IBOR - What do we know about what is changing?

Whilst several uncertainties remain, issues have become clear

IBORs are “term rates”, meaning they are published for different periods of time, such as three or six months. They are also “forward looking”, meaning they are published at the beginning of the borrowing period. On the other hand, the alternate benchmarks are “backward-looking” overnight rates based on verified historical transactions and are published at the end of the overnight borrowing period.

Some industry working groups are reviewing whether robust forward-looking term versions of the RFRs can be developed, although their use is likely to be limited.

The RFRs under consideration are overnight near risk free rates, whilst IBORs include both a term structure and bank credit risk.

LIBOR and the majority of other IBORs measure unsecured interbank lending rates, whilst the proposed RFRs are based on short-term wholesale transactions for unsecured RFRs and repurchase or “repo” transactions for secured RFRs. As a result, IBORs imply a credit spread over the RFRs.