LIBORlike

LIBORlike refers to a class of benchmark interest rates that function similarly to the London Interbank Offered Rate (LIBOR), a historically influential reference rate used globally in financial contracts. LIBOR was a daily figure published by the British Bankers' Association (BBA) and later administered by ICE Benchmark Administration (IBA), representing the average interest rates at which banks in the London interbank market would lend to one another for specific tenors, such as overnight, one week, or one month. Due to its widespread use in loans, derivatives, and other financial instruments, LIBOR became a critical benchmark for pricing debt and assessing credit risk.

Following the 2008 financial crisis and subsequent scandals involving LIBOR manipulation, regulators and market participants sought alternatives to ensure transparency, integrity, and resilience in benchmark rates. LIBORlike rates are designed to replicate LIBOR’s role by serving as a reliable reference for transactions, though they are typically based on observable market transactions rather than bank surveys. These alternatives often incorporate transaction data from actual lending activity, reducing reliance on subjective estimates and mitigating risks of manipulation.

Examples of LIBORlike benchmarks include the Secured Overnight Financing Rate (SOFR) in the U.S., which is derived from U.S. Treasury repo transactions, and the Sterling Overnight Interbank Average (SONIA) in the UK, based on actual overnight lending rates. These rates aim to provide a more accurate reflection of market conditions while adhering to stricter regulatory oversight. The transition from LIBOR to LIBORlike benchmarks is part of broader efforts to modernize financial infrastructure and enhance market stability.