IBOR stands for Interbank Offered Rate – a type of interest rate benchmark that represents an average of the rates that banks will offer each other for loans of various maturities.
The most well-known and widely used IBOR is LIBOR. However, you might also encounter EURIBOR, TIBOR and other rates.
IBORs have been used in financial markets for a long time and feature in a huge variety of different products and transactions. Over-the-counter (OTC) derivatives in particular have long been associated with IBORs.
What is the IBOR transition?
The IBOR transition is the move away from IBORs to another type of interest rate benchmark known as a near-risk-free rate (RFR).
After the 2008 financial crash, regulators came to see IBOR benchmarks as increasingly problematic. LIBOR, the headline rate, was beset by scandals, and its usage in transactions dwindled. The G20 asked the Financial Services Board to look into IBOR reform, which led to the move to use RFRs instead.
Various RFRs will be used instead of IBORs, including SONIA, SOFR, and ESTR. In the UK, the deadline for the discontinuation of LIBOR is December 2021.