The London Interbank Offered Rate (LIBOR) is not much longer for this world, with the reference rate on track to be discontinued in most of the world by the end of the year and for certain U.S. dollar (USD) transactions by 2023. In fact, banking regulators earlier this year advised that new financial contracts after Dec. 31, should not utilize the rate. 

LIBOR, which is an average of the interest rates used in interbank lending by the leading financial institutions in London, has been the standard in borrowing for decades. However, revelations of collusion involving the banks setting the rate and further scandals over the previous decade, as well as its inherent drawbacks, prompted a global transition to more risk-free rates. For USD transactions, the Secured Overnight Finance Rate (SOFR) is the recommended replacement by the Federal Reserve’s Alternative Reference Rates Committee (ARRC). 

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