The London Interbank Offered Rate (LIBOR) is currently the world’s most widely used interbank offered rate for short-term interest rates. LIBOR benchmarks are based on a daily quotation of rates by a number of leading banks regarding what it would cost the submitting bank to borrow unsecured funds from another bank. The administrator of LIBOR produces daily rates for five different currencies, being: USD, GBP, EUR, JPY and CHF, each of which are provided for various terms ranging from overnight lending to a twelve month term. LIBOR is published daily and referenced in a wide variety of contracts including loans and other credit products, bonds and derivatives.
In July 2014, the Financial Stability Board (the FSB) (an international body that monitors and makes recommendations intended to promote financial stability in the global financial system) issued a report expressing concerns about the reliability and robustness of existing interbank benchmark rates, including LIBOR. The recommendations in that report are now being implemented to address the FSB’s concerns, in particular, that the existing benchmarks were based on reported borrowing cost and were not grounded in actual transactions.
Currently, the replacement rate is still unknown, but it appears that USD LIBOR will most likely be replaced by a rate referencing the Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. Loans or products in currencies other than US dollars will be replaced by different rates. RBC will provide further communication to clients prior to implementing the replacement rate.
Royal Bank of Canada is working on the basis that LIBOR will no longer be available for use in new client transactions after 2021 and is actively participating in industry-wide discussions and monitoring market responses regarding the transition away from LIBOR. RBC is collaborating with various working groups in the jurisdictions in which it operates to track the development of alternative (or reformed) nearly risk free reference rates and consider their implementation across a number of markets and products.
The impact to you depends on what type of product you hold, the reference rate applicable to that product and the terms of that product.
RBC is monitoring market transition progress for any newly emerging market standard and will make every effort to ensure that you have adequate notice of the need for change.
If you hold a CAL, the change of the reference rate will be addressed according to the terms of your agreement. RBC will provide details about how the reference rate will change and to which rate exactly. RBC will provide appropriate communication to you well ahead of the transition date, likely sometime this summer, 2021.
We will update this webpage with further information and updates from time to time. If you have any further questions in the meantime, please contact your Financial Advisor.
Investment and insurance products offered through RBC Wealth Management are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, or guaranteed by, a bank or any bank affiliate, and are subject to investment risks, including possible loss of the principal amount invested.