The London Interbank Offered Rate (LIBOR) is a benchmark interest rate used by major global banks in the international interbank market to lend to one another for short-term loans Currently, each LIBOR rate is published by the ICE Benchmark Administration (IBA) (the administrator for LIBOR) on every applicable London business day, calculated for five currencies (USD, GBP, EUR, CHF, and JPY) and seven tenors (Overnight/Spot Next, One Week, One Month, Two Months, Three Months, Six Months, and 12 Months). It serves as a globally recognized key benchmark interest rate that indicates the cost of borrowing between banks. LIBOR is also used as the basis for consumer loans in many countries around the world, so it has an impact on consumers as well as financial institutions. The interbank rate influences the interest rates on various credit products such as credit cards, car loans, and adjustable-rate mortgages. This change in rate influences the ease with which banks and consumers can borrow. The Intercontinental Exchange (ICE) calculates and publishes the rate every day, but due to recent scandals and questions about its validity as a benchmark rate, it is being phased out. LIBOR will be phased out by June 30, 2023, according to the Federal Reserve and UK regulators, and will be replaced by the Secured Overnight Financing Rate (SOFR). LIBOR one-week and two-month USD LIBOR rates will no longer be published as part of this phase-out after December 31, 2021, because major banks have been accused of conspiring to manipulate LIBOR rates, they took traders' requests into account and submitted artificially low LIBOR rates to keep them at their preferred levels. The alleged malpractice was intended to boost the profits of traders who held positions in financial securities based on LIBOR. The transition away from LIBOR is widely regarded as one of the most difficult challenges facing the financial industry. So, what will replace the LIBOR? For the various financial markets, several alternate reference rates are being considered, such as the Sterling Overnight Index Average (SONIA), Swiss Average Rate Overnight (SARON), and Tokyo Overnight Averaged Rate (TONAR), with the Secured Overnight Financing Rate (SOFR) being hailed as one of the favorites in matters of USD lending transactions. The SOFR is also a benchmark interest rate for dollar-denominated loans and derivative contracts. SOFR differs from LIBOR in that it is based on actual observed transactions in the US Treasury market, whereas LIBOR is based on estimated borrowing rates. Despite the upheaval caused by the discontinuation of LIBOR, there is no denying that there is a fundamental flaw in the LIBOR process, which has justified the FCA's decision to end the world's most important number. The transition from LIBOR will, without a doubt, be highly problematic, which will need the participation of every stakeholder in the financial, regulatory, and legal sectors in order to make the process as smooth as possible and with the least amount of ripple effects. Bibliography Thank you.
https://corporate.cyrilamarchandblogs.com/2021/05/a-transition-away-from-libor-what-it-means-for-ecb-lending-in-india/
https://www.investopedia.com/terms/l/libor.asp#:~:text=The%20London%20Interbank%20Offered%20Rate,market%20for%20short%2Dterm%20loans.
https://economictimes.indiatimes.com/definition/libor
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