The global financial industry has transitioned away from a key benchmark interest rate — the London Interbank Offered Rate, or LIBOR — to new alternative reference rates (ARRs). Wells Fargo no longer issues new LIBOR products, and all new deals and renewals are priced using an ARR. Wells Fargo selected the Secured Overnight Financing Rate (SOFR) as the primary ARR for use in new U.S. dollar contracts.

Now that the industry has shifted away from LIBOR, we’re here to help you understand the new rates and how these changes may impact your transactions, as well as help answer any questions that you may have about LIBOR transition.

This global transition is an evolving process. But we are an active member of global industry working groups, and we will continue to follow developments, take necessary measures, and provide critical information to support a smooth transition for our customers.

Understanding the LIBOR transition

Why it’s significant

LIBOR stands for London Interbank Offered Rate. It’s an index that was originally intended to reflect interest rates that major banks charge each other for short-term loans. LIBOR was used internationally as a benchmark or “reference rate” for setting rates on loans and other financial products.

The effort to replace all LIBORs is an organized global initiative. International working groups were established to identify appropriate ARRs and develop a transition strategy for each currency’s LIBOR. Wells Fargo is an active member of many of the international working groups, including the Alternative Reference Rates Committee in the U.S. We have changed hundreds of thousands of affected contracts and related systems, employing recommendations of the international working groups and trade associations.

Why LIBOR is being replaced

LIBOR has been a long-established global benchmark for interest rates, but its credibility has declined over the past decades. During the financial crisis that began in 2007, LIBOR sometimes behaved in unpredictable and volatile ways.

Although improvements have been made to the system, the volume of transactions supporting LIBOR continues to shrink, and the calculation of LIBOR is increasingly perceived as a subjective process based more on hypothetical transactions and judgment than actual transactions. As a result, the regulator of LIBOR called for the market to transition to more robust reference rates.

What’s replacing LIBOR

Regulators worldwide convened currency-based working groups to recommend ARRs to serve as alternatives or replacements for LIBOR, as shown in the following table:

LIBOR currency
Alternative reference rate
Secured Overnight Financing Rate
Sterling Overnight Index Average

Euro Short-Term Rate
Swiss Average Rate Overnight

Tokyo Overnight Average Rate

Wells Fargo offers ARRs in addition to those set forth above. For example, in certain products and markets Wells Fargo offers forward-looking term rates published by CME Group (“CME Term SOFR.”). You should discuss the options with your Wells Fargo representative. Wells Fargo may offer other market established benchmarks where there is client demand for them and where appropriate. Customers should independently evaluate and consult their advisors concerning the financial, market, legal, regulatory, credit, tax and accounting risks and consequences of entering into products referencing ARRs.

What will happen to LIBOR after June 30, 2023?

US and global regulators directed banks to cease offering new LIBOR-based products after December 31, 2021, except in certain, narrowly-prescribed circumstances.

LIBOR is administered by ICE Benchmark Administration Limited (IBA), which is regulated by the Financial Conduct Authority (FCA). LIBOR was historically compiled by IBA on the basis of a panel of banks providing quotes that are intended to be representative of interest rate markets. The FCA and IBA announced that these banks would stop providing quotes after June 30, 2023 for the remaining tenors of U.S. Dollar LIBOR. However, to facilitate an orderly transition for a small number of contracts, the FCA has compelled IBA to continue publishing a “synthetic” version of USD LIBOR in one-month, three-month, and six-month tenors for a limited period. “Synthetic” LIBOR will not be a “representative” rate and will be based on CME Term SOFR plus a fixed spread adjustment.

What we have done and continue to do to prepare

We have already taken several steps to transition as we continue to listen to customers’ concerns. Here’s what we’ve done so far:

  • Provide customer education: It’s important that all of our customers understand this global market change and its impacts. Since September 2018, we have undertaken a major effort to talk directly to customers about the transition and listen to concerns. We’ve already conducted customer outreach in dozens of U.S. cities and our international markets. As the end of LIBOR approaches, we’ll continue to keep our customers informed. 
  • Implement new contract language and products: Over the past few years, we’ve encouraged use of more robust “fallback language” in our contracts that contemplates the end of LIBOR. We’ve launched a wide range of products based on ARRs and have developed contract standards and protocols for these products.

Learn more

To ensure that you and all of our customers are informed with the appropriate information and equipped to make educated decisions, we’ll continue to provide you with helpful resources. 

For more information about the LIBOR transition, please see our Contact Us page to discuss with the relevant lines of business. 

You can also find industry information on the transition away from LIBOR, other interest rate benchmarks, and the Private/Public-Sector IBOR Transition Working Groups: