Federal Reserve says key bank lending rate will be phased out by June 2023

An interest rate that banks around the world use as a benchmark for short-term borrowing will be phased out and eventually replaced by June 2023, the Federal Reserve announced Monday.

The Fed was joined by regulators in the UK in announcing the plans for the London Interbank Offered Rate, commonly referred to as LIBOR.

According to the announcement, banks should stop writing contracts using LIBOR by the end of 2021, after which the rate no longer will be published.

Contracts using LIBOR should wrap up by June 30, 2023, the directive said.

“Today’s plan ensures that the transition away from LIBOR will be orderly and fair for everyone – market participants, businesses, and consumers,” Fed Governor Randal Quarles, who serves as the central bank’s vice chair for supervision, said in a statement.

LIBOR is calculated from an average of banks that participate in overnight lending to each other. The rate is critical for short-term funding that financial institutions use for their operations, but has seen controversy over the years, particularly the role it played in the 2008 financial crisis.

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