Branch Network
Frequently Asked Questions BACK

How the New Risk-Free Rates are different from LIBOR?

The main difference between the alternative Risk-Free Rates and LIBOR rates is that the new rates are overnight rates, and not term rates like LIBOR.

There are fundamental and technical differences between LIBORs and the new RFRs. To accommodate these differences, an established market approach recommended by ISDA (International Swaps and Derivatives Association) and the ARRC *  (Alternative Reference Rates Committee) was implemented for the calculation of the fallback spread adjustment. After the cessation announcement by the FCA, the fallback spread adjustment was locked and was published by Bloomberg in the following link: Fallback Spread Adjustment.

Regulators expect active transition to new risk-free rates linked products as the primary transition strategy.

*The ARRC is a group of private-market participants convened by the Federal Reserve Board and the New York Fed to help ensure a successful transition from USD LIBOR to a more robust reference rate, its recommended alternative, the Secured Overnight Financing Rate (SOFR). It is comprised of a diverse set of private-sector entities, each with an important presence in markets affected by USD LIBOR, and a wide array of official-sector entities, including banking and financial sector regulators.