LIBOR Transition

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.

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.

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