The Transition from LIBOR

Banks and corporations that held loan, bond and derivative contracts referencing LIBOR had to check the contract terms and the timing of the switch (a task for finance and operations staff) and change how the reference rate is held (a task for systems staff).

How LIBOR worked and how it was used

LIBOR (London Interbank Offered Rate) was a benchmark rate for interest rates in the London interbank market. A group of banks selected as panel banks submitted to the administrator the rates at which they would borrow funds unsecured, and the administrator compiled and published the result¹. Before the end of 2021, 35 settings were published: 5 currencies (the US dollar, sterling, euro, Swiss franc and yen) in 7 tenors from overnight to 12 months². Because LIBOR was a term rate for unsecured borrowing by banks, it included bank credit risk. The rate was also set before the interest period began, so the amount of interest to be paid was known in advance³.

LIBOR was widely used as the floating rate for loans, bonds and derivatives. According to a 2014 survey by the Financial Stability Board (FSB), contracts referencing US dollar LIBOR amounted to 150 trillion US dollars, and those referencing yen LIBOR to 30 trillion US dollars⁴. In Japanese interest rate swaps as well, trades cleared by Japan Securities Clearing Corporation (JSCC) that referenced LIBOR stood at 978 trillion yen at the end of December 2017. That was far larger than the 10.8 trillion yen of OIS⁵.

Why publication was to end

Confidence in LIBOR was badly shaken in 2012, when it came to light that some panel banks had submitted rates that did not reflect actual market conditions¹. After that, efforts were made to reform LIBOR, reflecting the view that benchmarks should be based on actual transactions as far as possible.

Even so, the unsecured interbank transactions underlying LIBOR did not grow enough. In 2017, the UK Financial Conduct Authority (FCA), which supervised LIBOR, indicated that the LIBOR framework could not be sustained. It also pointed out that many panel banks were uneasy about submitting rates⁶. In July of the same year, the head of the FCA said that the FCA would not use its powers to keep LIBOR going after the end of 2021⁷.

If LIBOR stopped being published, no new trades could reference it, and calculating and exchanging interest on existing trades would become difficult. The FCA therefore asked panel banks to keep submitting for a certain period. At the same time, it urged market participants to move the rate they referenced from LIBOR to other benchmark rates before submissions stopped. This set off the transition away from LIBOR in countries around the world⁶.

When each currency and tenor ended

In March 2021, the FCA and ICE Benchmark Administration (IBA), the administrator of LIBOR, announced when LIBOR would end⁸. The table shows when publication by panel banks ended for each currency and tenor. The right-hand column shows the risk-free rate (RFR) that the working group in each country or region recommended in place of LIBOR⁹.

Figure 1 lists the main dates related to the end of LIBOR in date order.

Figure description

A timeline of the main events related to the end of LIBOR, in order. After a statement by the head of the FCA, the FCA announced when each currency and tenor would end, and the end of publication came in two stages. The yen, euro, sterling, Swiss franc and others ended first, the main US dollar tenors followed, and finally synthetic US dollar LIBOR ended, which ended all of LIBOR. The filled dots mark the two milestones at which panel-bank publication ended and the milestone at which all of LIBOR ended. The spacing does not reflect the length of time between dates.

Synthetic LIBOR was LIBOR calculated by a different method using market data, not panel bank submissions¹⁰. The FCA required its publication using powers under the UK Benchmarks Regulation. It could not be used in new contracts, and only some legacy contracts could use it. Synthetic US dollar LIBOR could not be used for derivatives cleared through a central counterparty¹¹. Synthetic US dollar LIBOR was published for the last time on September 30, 2024, and with that, all of LIBOR came to an end².

Successor rates

Successor rates were chosen currency by currency, and the working group in each country or region chose an RFR that suited its own market¹². SOFR in the US and SARON in Switzerland are rates on repo (secured) transactions. SONIA in the UK, €STR in the euro area and TONA in Japan are rates on unsecured transactions. All of them are overnight rates⁹. What Is a Benchmark Rate? explains how these rates differ.

In Japan, the Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks (the Cross-Industry Committee) narrowed the alternatives to yen LIBOR down to three in its July 2019 public consultation. The first was TONA compounded in arrears, the second was TORF (Tokyo Term Risk Free Rate), which is calculated from OIS trades, and the third was TIBOR (Tokyo Interbank Offered Rate)¹³. The three differ in when the rate is set and in whether it includes bank credit risk. Like LIBOR, TORF and TIBOR are set at the start of the period, while TONA compounded in arrears is set just before the interest payment date. Only TIBOR includes bank credit risk. This way of choosing among several rates to suit the nature of each trade is called the multiple-rate approach¹⁴.

How existing contracts were moved

To move existing contracts that referenced LIBOR, the parties had to agree to choose and use a successor rate. They also had to change the systems and operational processes used for the trades¹⁷. A survey by the Cross-Industry Committee lists the following ways to make the transition¹⁸.

The successor rate that a fallback provision switches to takes the form of a base rate (the fallback rate) plus a spread adjustment. There is usually a gap between LIBOR and the fallback rate. Switching without adjustment could cause a "transfer of value," with one party gaining and the other losing, so the gap is adjusted to keep the transfer as small as possible¹⁹. For yen loans that use TONA compounded in arrears, the successor rate is TONA compounded in arrears plus a spread adjustment²⁰.

Consider a hypothetical example in which Bank C lent 1 billion yen to Company D for half a year (calculated as 0.5 of a year), with interest set by yen LIBOR. LIBOR ended, and the contract switched to TONA compounded in arrears plus a spread adjustment. The spread adjustment is 0.05% a year.

If TONA compounded in arrears comes in at 0.40%, Company D's interest is 250,000 yen less than the reference 2.5 million yen, and at 0.60% it is 750,000 yen more. For Bank C it is the reverse. With LIBOR, the amount of interest was known at the start of the period. After the switch it is not set until close to the end of the period, so both Bank C and Company D have to align their cash management and system calculations with that timing. Fallbacks and Spread Adjustments covers how the spread adjustment is set and how it differs among loans, bonds and derivatives.

For derivatives, the International Swaps and Derivatives Association (ISDA) prepared two documents for adding fallback provisions to ISDA contracts. On October 23, 2020, it published the IBOR Fallbacks Supplement, which amends the definitions for new trades, and opened the IBOR Fallbacks Protocol, which covers existing trades, for adherence²¹. For existing trades, when market participants adhere to the protocol, the contracts between them are amended all at once to include standardized fallback provisions. New trades get the same provisions by referencing the ISDA definitions as updated with the new fallback provisions²². In November 2020, the Cross-Industry Committee recommended adhering to this protocol²³.

For cleared trades, JSCC converted the yen LIBOR-referencing trades it cleared into trades that reference TONA (OIS), all at once, in December 2021²⁴.

Contracts that were truly difficult to transition were called tough legacy contracts, and synthetic LIBOR was created as a safety net for them. In notices issued in March and November 2021, the Financial Services Agency (FSA) and the Bank of Japan indicated that the use of synthetic yen LIBOR should be limited²⁵.

The response in Japan

Japan's transition was led by the Cross-Industry Committee, set up in August 2018 with the Bank of Japan as its secretariat. Its members included financial institutions, institutional investors and non-financial corporations²⁶. The FSA and the Bank of Japan jointly surveyed financial institutions' use of LIBOR. They also issued a notice asking the chief executives of major financial institutions to submit transition plans and other information²⁷. The main events are listed below in date order²⁸.

In a survey of 42 participating firms that the Cross-Industry Committee conducted in January 2022, the share of contracts whose transition had been completed by the end of December 2021 was given as a range of 97–99%²⁹. Japan completed the transition without any special legislation for the LIBOR transition³⁰.

US dollar LIBOR, however, was also widely used by Japanese financial institutions and non-financial corporations. The FSA and the Bank of Japan therefore asked them to press ahead with the transition with the end of June 2023 in mind³¹.

Notes

1. Bank of Japan and Financial Services Agency, "円LIBOR 移行対応の振り返りと今後の取り組み" (A review of the transition from yen LIBOR and future initiatives) (Bank of Japan Review 2022-J-8, May 2022, in Japanese; hereafter the BOJ Review), "LIBOR 公表停止の経緯" (Background to the cessation of LIBOR publication), pages 1–2. An English version is available: "Review of JPY LIBOR Transition and Future Initiatives" (Bank of Japan Review 2022-E-4, May 2022). Page and note numbers in these footnotes refer to the Japanese version. ↩ ↩²

2. Financial Conduct Authority, "About LIBOR transition," the opening section (the number of tenors and currencies, and the cessation of all 35 settings). Checked against the version last updated on March 9, 2026. ↩ ↩²

3. Study Group on Risk-Free Reference Rates, "日本円ＯＩＳ（Overnight Index Swap）─取引の概要と活用事例─" (Yen OIS: overview of transactions and examples of use, information as of March 2018, in Japanese; hereafter the OIS Document), "（１）IBOR と OIS レートの性質の違い" (1. Differences in nature between IBOR and OIS rates), pages 7–8. ↩ ↩²

4. BOJ Review, note 1, page 7. ↩

5. OIS Document, Chart 2, "2017 年の OIS/LIBOR/TIBOR の対固定金利スワップ清算取引" (Cleared OIS, LIBOR and TIBOR swaps against fixed rates in 2017), page 4 (the 6th page of the PDF), the year-end outstanding amounts. The figures are notional amounts at the end of December 2017. ↩

6. BOJ Review, "LIBOR 公表停止の経緯" (Background to the cessation of LIBOR publication), page 2. ↩ ↩²

7. OIS Document, "金利指標の存続に関する不透明感の高まり" (Growing uncertainty over the continuation of interest rate benchmarks), page 2 (the 4th page of the PDF). ↩

8. Financial Conduct Authority, "About LIBOR transition," "Background to LIBOR being wound down." The end date for each currency is given there. The date of the announcement (March 5, 2021) is in note 2 (page 7) of the BOJ Review. ↩

9. Financial Conduct Authority, "About LIBOR transition," "International coordination on benchmark reform," the table "RFRs recommended as alternatives to LIBOR." ↩ ↩²

10. BOJ Review, "セーフティネットの整備" (Putting safety nets in place), page 5. ↩

11. Financial Conduct Authority, "About LIBOR transition," "Background to LIBOR being wound down" (the coverage of synthetic LIBOR, the deadlines and the contracts that could use it) and the opening section (the date of the last publication of 3-month sterling LIBOR). ↩

12. BOJ Review, "円滑な移行対応の実現に向けた取り組み" (Efforts toward a smooth transition), page 2. ↩

13. BOJ Review, "必要な道具立ての整備" (Putting the necessary tools in place), page 3, and Chart 2, "代替金利指標の３つの選択肢" (Three options for alternative interest rate benchmarks). ↩

14. BOJ Review, note 11, page 7. ↩

15. Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks, "貸出における TONA（後決め）のコンベンション（利息計算方式）について" (Conventions for TONA compounded in arrears in loans (interest calculation methods), in Japanese; hereafter the TONA Loan Document), the chart of the "Lookback without Observation Shift" method (an example in which the rate observation period is shifted 5 business days earlier), page 1. ↩

16. TONA Loan Document, note 1, page 1. The timeline of the transition plan is in Chart 4 (page 4) of the BOJ Review. ↩

17. BOJ Review, "LIBOR 公表停止の経緯" (Background to the cessation of LIBOR publication), page 2. ↩

18. BOJ Review, note 2 to Chart 6, page 5. The meaning of a fallback provision is in note 10, page 7. ↩

19. Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks, "日本円金利指標の適切な選択と利用等に関する市中協議" (Public Consultation on the Appropriate Choice and Usage of Japanese Yen Interest Rate Benchmarks, July 2019, in Japanese; hereafter the 2019 Consultation), "＜論点２＞後継金利" (Issue 2: successor rates), pages 23–24 (the 24th and 25th pages of the PDF). An English version is available: "Public Consultation on the Appropriate Choice and Usage of Japanese Yen Interest Rate Benchmarks". ↩

20. TONA Loan Document, note 7, page 3, "後継金利（TONA（後決め）＋スプレッド調整値）" (successor rate (TONA (in arrears) + spread adjustment); our translation). ↩

21. Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks, "ISDA IBOR フォールバック・プロトコルの批准について" (On adherence to the ISDA IBOR Fallbacks Protocol, in Japanese), November 6, 2020, main text and notes 1–2. ↩

22. 2019 Consultation, "＜論点３＞手続" (Issue 3: procedures), page 27 (the 28th page of the PDF). ↩

23. BOJ Review, Chart 3 (page 3). ↩

24. BOJ Review, note 23, page 8. ↩

25. BOJ Review, "セーフティネットの整備" (Putting safety nets in place), page 5. ↩

26. BOJ Review, "LIBOR 公表停止の経緯" (Background to the cessation of LIBOR publication), page 2. ↩

27. BOJ Review, "市場参加者の対応と公的部門による働きかけ" (Responses by market participants and encouragement by the public sector), page 4, and Chart 5. ↩

28. BOJ Review. The establishment is on page 2, the public consultations and the transition plan are in Chart 3, the June 2020 notice is in Chart 5, the JSCC conversion is in note 23, the end of publication is in the summary, and the move of activities in March 2022 is in note 34. ↩

29. BOJ Review, "円LIBOR 移行対応の着実な進捗" (Steady progress in the transition from yen LIBOR), page 5. The document gives the figure as "9.7 割～9.9 割" (97% to 99%), without a breakdown of the range. ↩

30. BOJ Review, note 26, page 8. ↩

31. BOJ Review, "当面の留意点" (Points to note for the time being), page 6. ↩