First, what is LIBOR? For decades, the basis of the interest rates for loans— particularly for commercial real estate loans, has been the London Interbank Offered Rate, more commonly known as LIBOR. The London Interbank Offered Rate (LIBOR) is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans. LIBOR serves as a globally accepted key benchmark interest rate that indicates borrowing costs between banks. Due to recent scandals and questions around its validity as a benchmark rate, it is being phased out by 2023.
The transition from LIBOR is important because the potential disruption or discontinuance of LIBOR poses a financial stability uncertainty as well as a risk to the organizations with LIBOR exposures. LIBOR is also the basis for consumer loans in countries around the world, so it impacts consumers just as much as it does financial institutions. The interest rates on various credit products such as credit cards, car loans, and adjustable-rate mortgages fluctuate based on the interbank rate.
For more information, please read the full article by Wealth Management here.