Vanguard readies for life after LIBOR

Why LIBOR is going away

Owing to a decline in short-term interbank lending volume, LIBOR has increasingly been based on the expert opinion of a panel of banks rather than on actual transactions. The U.K.’s Financial Conduct Authority, the oversight body regulating LIBOR since 2013, has reached an agreement ensuring the panel will continue submitting daily estimated borrowing rates only through December 2021, which explains why LIBOR is going to be discontinued.

A variety of different reference rates are being considered across the globe to replace LIBOR, but its successor in the United States is the Secured Overnight Financing Rate, or SOFR. This interest rate, published daily by the Federal Reserve Bank of New York, is based on transactions in Treasury repurchase agreements—overnight financing for banks that sell U.S. Treasuries and agree to repurchase them the next day for a set interest rate.

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