What is LIBOR?

LIBOR, the London Interbank Offered Rate, has been used globally as a benchmark to gauge funding costs and investment returns for financial contracts for more than three decades. This benchmark is used to help set the interest rates on many products offered by financial institutions.

If you have a loan with a variable interest rate at Busey Bank, including Adjustable Rate Mortgages (ARMs) on residential property, commercial loans and personal loans, your rate may currently be determined by the LIBOR index, plus a fixed margin.

Why replace LIBOR?

Changing industry norms and regulatory directives are driving a shift away from LIBOR.

LIBOR is not influenced by the market, and in recent years, it has been perceived as a subjective index due to the lack of underlying transactions on which the rate is now based. Banking industry leaders and banking regulators agree that the market should transition to a more robust, transparent and transaction-based index rate. As a result, the administrator of LIBOR ceased publishing certain little-used LIBOR tenors after December 31, 2021, and announced that it will cease publishing the remaining LIBOR tenors after June 30, 2023.  Additionally, banking regulators have stated that banks should not enter into new LIBOR contracts after December 31, 2021.

How is Busey preparing for the LIBOR transition?

Based on industry guidelines, Busey has formed an internal LIBOR Steering Group that is tasked with developing and overseeing a smooth LIBOR transition plan. We are actively engaged with our vendors, industry peer groups and legal experts to determine the best path forward for both the bank and our clients.

What are the alternative indexes to LIBOR?

In the United States, the Federal Reserve established a working group of industry leaders and regulators to form the Alternative Reference Rates Committee (ARRC). ARRC has recommended the Secured Overnight Financing Rate (SOFR) to replace LIBOR.  As SOFR has historically been lower than LIBOR, ARRC has also recommended fixed spread adjustments when transitioning from LIBOR to SOFR in order to make the indexes comparable.

Banking regulators have stated, however, that banks are free to choose an alternative index that best suits their clients’ needs and there are other options available, including the Prime Rate, the U.S. Treasury Rate, AMERIBOR and the Bloomberg Short-Term Bank Yield Index (BSBY).

What alternative index has Busey selected?

Busey has selected the SOFR index as its preferred alternative index. 

For commercial loans, Busey has selected Term SOFR as published by CME Group Benchmark Administration Limited (CME Group). 

For ARMs and other consumer loans, Busey has selected Refinitiv USD IBOR Consumer Cash Fallback as published by Refinitiv (the Refinitiv Index).  The Refinitiv Index is based on CME Group Term SOFR, but includes ARRC’s recommended spread adjustments for consumer loans.

These SOFR-based indexes have been officially endorsed by ARRC, and both Fannie Mae and Freddie Mac have announced that they will transition their LIBOR-based ARMs to the Refinitiv index.  Also, the Adjustable Interest Rate (LIBOR) Act that was signed into law by President Biden earlier this year identifies these SOFR-based indexes as comparable replacement indexes for LIBOR.

How will the transition affect my loan with Busey?

If your loan contract lists LIBOR as the benchmark index, you may be impacted. As the transition approaches, impacted clients can expect communication from Busey with details specific to their situation and next steps.

Please contact your Relationship Manager or other point of contact at Busey with any additional questions or concerns.

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