Canada
LIBOR Replacement
Background
For many years, TD Bank and financial institutions around the world used the London Interbank Offered Rate (LIBOR) as a benchmark for setting interest rates. However, LIBOR has ceased to be a reliable rate and is being replaced with alternative reference rates (ARRs).
The change was set in motion by the 2008 financial crisis which revealed LIBOR's lack of transparency and vulnerability to manipulation. Over time, however, as the number of transactions has decreased, it relied more heavily on subjective judgment.
On March 5, 2021, the ICE Benchmark Administration (IBA), the administrator for LIBOR, announced that it will stop publishing LIBOR as of the dates below:
- USD – 1-week and 2-month Tenors – Final Publication Date: December 31, 2021
- USD – All Other Tenors – Final Publication Date: June 30, 2023
- GBP: British Pound Sterling – All Tenors – Final Publication Date: December 31,2021
- EUR: Euro (EUR LIBOR) – All Tenors – Final Publication Date: December 31, 2021
- CHF: Swiss Franc – All Tenors – Final Publication Date: December 31,2021
- JPY: Japanese Yen – All Tenors – Final Publication Date: December 31,2021
- CDOR – 6- and 12-month Tenors – Final Publication Date: May 17, 2021
In addition, they are extending the publication of remaining USD LIBOR tenors until June 30, 2023 to allow legacy contracts to mature or be renewed on an ARR before LIBOR ceases to be published.
More information is available at ICE LIBOR® Feedback Statement on Consultation on Potential Cessation.
With LIBOR on its way out, regulators and industry groups are working to select new benchmarks for setting interest rates on loans and other products.
Groups like the Federal Reserve Bank of New York's Alternative Reference Rates Committee (ARRC) and the International Swaps and Derivatives Association (ISDA) have been working to identify new reference rates based on observable transactions that represent actual market activity. The ARRC recommended the Secured Overnight Finance Rate (SOFR ) as an index to replace LIBOR in loans and other financial instruments.
Regulators aren’t dictating the use of a particular alternative reference rate. Instead, market participants will choose from among various alternatives.
Unlike LIBOR, Secured Overnight Financing Rate (SOFR) is an overnight rate, not a term rate. It's a broad measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, calculated by a volume-weighted median of this transaction-level data.
Making the switch from LIBOR
If you have a LIBOR-based product, including an adjustable rate mortgage, commercial loan, line of credit, etc., we’ll work with you to transition to new ARRs.
To prepare for the transition, new and renewing contracts will include "fallback" terms based on ARRC recommendations. Fallback refers to contract provisions identifying circumstances that will prompt the transition from LIBOR to an alternative reference rate. These contract terms reduce uncertainty and allow your product to keep working after LIBOR phases out.
A seamless shift for TD Customers
You don’t have to take any action today. We’ll keep you informed as we continue toward the change.
To provide a smooth transition from LIBOR, we’ve established a company-wide initiative focused on:
- Participating in industry groups exploring new benchmark rates
- Choosing the best alternative reference rate(s) for each TD product
- Creating efficient processes for updating existing accounts
- Improving systems and other infrastructures to prepare for the switch
- Communicating with you about upcoming changes
TD continues to evaluate the best rates to fit Customer and business needs. Please keep checking this page for updated information or reach out to your TD representative.
