Understanding the LIBOR Transition

Regulators in the United States are urging banks to phase out their use of the London Interbank Offered Rate (LIBOR), an interest rate index commonly used in the global financial industry, by the end of 2021. Citizens Business Bank has certain products that contain the LIBOR index. As such, we are evaluating the process of transitioning away from reliance on LIBOR.

On March 5th 2021, ICE, the benchmark administrator for LIBOR confirmed its proposed end dates for most tenors of USD LIBOR to June 30, 2023. Regulators also encouraged banks to stop entering into new LIBOR contracts as soon as practicable and not later than December 31, 2021.



While LIBOR has long been an established benchmark for determining interest rates, recent scandals have ruined its credibility as a reliable global benchmark. The global financial crisis also proved that LIBOR could be an unpredictable and volatile measure of market rates. For these reasons, LIBOR is already being phased out in industries across the world in favor of alternative rates.

LIBOR has been used to price a wide range of products, including:

  • Residential mortgages
  • Student loans
  • Corporate loans
  • Corporate bonds and other securities
  • Derivatives

An estimated $400 trillion of transactions across the world rely on LIBOR benchmarks. If you currently have a corporate loan, an adjustable rate loan, or a swap with Citizens Business Bank, it is likely these were completed with the use of LIBOR.

The financial industry will undergo significant changes with the phasing out of LIBOR, but our goal is to ensure your transition to an alternate rate is as seamless as possible.



While the global financial industry has not yet come to an agreement on a LIBOR alternative, the Federal Reserve has convened an Alternative Reference Rates Committee (ARRC) to identify a suitable replacement. Many options are currently under consideration by ARRC, with Secured Overnight Financing Rate (SOFR) appearing to be the most likely choice at this time. The Federal Reserve Bank of New York began publishing the SOFR rate in April 2018. The Federal Reserve Board recommends market participants use SOFR because it is based on daily transaction data from the U.S. Treasury repurchase, or repo, market. The ARRC has even published a transition plan to advise banks on making the switch to SOFR before the end of 2021. Other alternatives, such as the American Financial Exchange’s AMERIBOR, and Citizens Business Bank’s Prime Rate are also under consideration.

Citizens Business Bank is currently evaluating the various benchmarks available. At this time, we are still determining which option we will offer as an appropriate replacement for LIBOR.



How you are affected by the discontinuation of LIBOR will be dependent on your current Citizens Business Bank product or service. We have included a variable range of fallback rates and fallback language into some of our offered products and services in anticipation of the transition to a new benchmark rate. In addition, the spread adjustment may also be affected to ensure alignment with previous LIBOR rate structures. As we move away from reliance on LIBOR, you may find that your original intention for obtaining a product or service may no longer align with using LIBOR as the benchmark rate. There is also the potential for accounting systems to be incompatible with the interest rate that is chosen.



A global transition away from the use of LIBOR, while necessary, does come with risks for both ourselves and our borrowers. We are unable to guarantee that LIBOR will still be accessible for existing products or services that still reference the rates after December 31, 2021. Loan or interest rate hedging products that you currently have with Citizens Business Bank may also be affected.

Our team will continue to follow industry news relating to the potential impact of the LIBOR transition on our Bank and our customers. In addition, we recommend reviewing the impact of a LIBOR transition on your business in discussions with your professional advisors.





This communication is provided for information purposes only and is subject to change. This communication is general in nature and does not take into account any specific financial objectives or the needs of any particular person. The communication does not constitute an offer or a recommendation to enter into any product or service and does not constitute investment advice. Any entry by a customer into any product or service with Citizens Business Bank requires Citizens Business Bank’s agreement, which will be subject to internal approvals and the execution of binding documents. Where information in this communication has been obtained from or is a link to third party sources, we believe those sources to be reliable but we do not guarantee the information’s accuracy. Neither Citizens Business Bank nor any of its directors, officers, employees, representatives, or agents, accepts any liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this communication or its contents or reliance on the information contained herein. You have sole responsibility for the management of your tax and legal affairs including complying with any applicable laws and regulations. We have not and will not provide you with tax or legal advice and recommend that you obtain independent tax and legal advice tailored to your individual circumstances. The contents of this communication have not been reviewed or approved by any regulatory authority.