Skip to main content

LIBOR Transition

City National Bank is actively making preparations to transition away from the London Interbank Offered Rate (LIBOR). Although LIBOR is one of the most widely used interest rate indexes in the U.S. financial industry for loans and other products, it is anticipated to be phased out by the end of 2021.

In July 2017, the U.K. Financial Conduct Authority (FCA), the supervisor of the administrator of LIBOR, announced that it will no longer compel panel banks to submit rates required to calculate LIBOR after December 31, 2021, although the exact date by which LIBOR will cease to be published may vary by currency.  While the FCA announcement pertained to LIBOR specifically, an industry-wide response triggered an examination more broadly of other interbank offered rates (IBORs)

Important Note To Clients

Given the pending cessation of LIBOR, there is no guarantee that LIBOR will continue to be published for the entire term of any financial instrument that references this rate, including any loan or interest rate hedging product you may have with City National Bank.

A change to the methodology used to calculate LIBOR or the permanent discontinuation of LIBOR could have an economic impact on any financial products referencing that rate. The terms of a financial instrument may provide a process for establishing a fallback rate, but for certain types of financial instruments it is currently uncertain what that fallback rate would be or how it would be established. The discontinuation of LIBOR could also result in a mismatch between the fallback rate established in the relevant financial instrument and your other financial instruments, including transactions used to hedge the impacted transaction.

As the migration away from LIBOR presents risks to both creditors and borrowers, City National Bank will continue to monitor the situation. We recommend that you do the same. You should consider (with your professional advisors) how you may be impacted by these developments, including whether there are other available benchmark interest rates offered that you may wish to select and whether it is necessary to amend any of your existing documentation referencing LIBOR.

Frequently Asked Questions

The London Interbank Offered Rate (LIBOR) is currently the world’s most widely used benchmark for short-term interest rates. Leading banks periodically report how much it would cost them to borrow in U.S. dollars from another bank on an unsecured, short-term basis. This information is used to determine LIBOR. Each bank’s reported borrowing cost does not have to be based on actual borrowing transactions and may be estimated within defined parameters. An estimated $200 trillion in derivatives, variable-rate mortgages, auto loans, commercial loans, credit cards, and other financial products are tied to LIBOR. Plans are underway to phase out LIBOR as a benchmark interest rate as soon as the end of 2021 (see further information below).

Industry groups and regulators have proposed a number of alternative benchmarks to replace LIBOR. The Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York established the Alternative Reference Rates Committee (ARRC) to identify a preferred alternative. Large financial institutions, along with regulators and certain industry groups, participate in the ARRC. The ARRC has identified the Secured Overnight Financing Rate (SOFR) as its chosen successor to LIBOR and established a transition plan. The Federal Reserve Bank of New York began publishing the SOFR rate in April 2018.

Some constituencies have objected to a transition to SOFR and have proposed different replacement benchmarks for LIBOR, such as AMERIBOR, which is published by the American Financial Exchange (AFX). ARRC has since agreed that other alternative risk-free rates would be appropriate replacements to LIBOR.  City National Bank is still evaluating the benchmarks and has not yet made a final decision regarding what options it will offer as LIBOR replacements.

The implications of reforming an interest rate, particularly if it involves discontinuation, will differ depending on the City National Bank product or service that you use. For example, different products or services have different fallback rates and fallback language, and some may not have any at all. Fallback language is a provision that contemplates a change or cessation of an interest rate and provides for the introduction of a new interest rate or means of determining a new interest rate. This could lead to, for example, a change in the value, tax or accounting treatment of the product or service, or the product or service no longer meeting the purpose you originally intended it to serve. It may also be the case that discounting rates or systems that you operate, such as accounting systems, may not be compatible with any new interest rate introduced.

This communication is provided for information purposes only and is subject to change. This communication is general in nature and does not take into account any specific financial objectives or the needs of any particular person.

The communication does not constitute an offer or a recommendation to enter into any product or service and does not constitute investment advice.  Any entry into any product or service requires City National Bank’s subsequent agreement, which will be subject to internal approvals and the execution of binding documents.

Where information in this communication has been obtained from or is a link to third party sources, we believe those sources to be reliable but we do not guarantee the information’s accuracy. Neither City National nor any of its directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this communication or its contents or reliance on the information contained herein.

You have sole responsibility for the management of your tax and legal affairs including complying with any applicable laws and regulations. We have not and will not provide you with tax or legal advice and recommend that you obtain independent tax and legal advice tailored to your individual circumstances.

The contents of this communication have not been reviewed or approved by any regulatory authority.