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Our offices will be closed on Thursday, November 28, in observance of the Thanksgiving Holiday.What you need to know.
Fulton Bank will no longer offer new loans utilizing LIBOR (London Interbank Offered Rate). Prime and SOFR (Secured Overnight Financing Rate) will be the primary replacements as the benchmark for determining interest rates. Banks around the world are also preparing for this transition, as the most common one-month LIBOR rate publication will be phased out by June 2023. Read more about the decisions that ARRC has made regarding LIBOR as of October 2021.
LIBOR has been used globally as a benchmark to gauge funding costs and investment returns for financial contracts for more than three decades. It is used to help set the interest rates on many products including loans, swaps, bonds, credit cards, adjustable-rate mortgages, and other products offered by financial institutions.
Changing industry norms and LIBOR manipulation scandals have driven a shift away from LIBOR, causing interbank lending markets to become much thinner and the number of actual transactions upon which the rate is based to decrease significantly. That has caused regulators worldwide to advocate markets moving away from LIBOR to a more reliable index.
The Alternative Reference Rates Committee (ARRC), an industry group convened by the Federal Reserve Board and the New York Fed, recommends using the Secured Overnight Financing Rate (SOFR). SOFR is considered a more robust reference rate than LIBOR as it is wholly based on actual transactions and represents an active daily market.
In July 2021, the ARRC announced that it endorses CME's Term SOFR Rates, following the completion of a key change in interdealer trading conventions under the SOFR First initiative. The ARRC’s acceptance of Term SOFR Rates is a major milestone in the transition away from U.S. dollar (USD) LIBOR, providing market participants with an essential transition tool. For more information, read here.
SOFR is based on transactions in the U.S. Treasury repurchase, or repo, market, where banks and investors borrow or lend Treasuries overnight.
Although LIBOR and SOFR reflect short-term borrowing costs, they are calculated very differently:
Fulton Bank will transition customer loans that mature after June 30, 2023, to an alternative index - likely either SOFR or Prime. Fulton Bank will follow financial industry guidance issued by the (ARRC) and will use the five-year historical median spread adjustment methodology for the index conversion.
Your Fulton Bank Relationship Manager will provide further updates in advance of any necessary changes. Reference this site for additional resources on the LIBOR transition and industry developments.
