On March 5, 2020, the ICE Benchmark Administration (IBA) announced plans to cease publishing the one-week and two-month London Interbank Offered Rates (LIBOR®) after December 31, 2021 and all other tenors after June 30, 2023.1


The Alternative Reference Rates Commission (ARRC), formed by the Federal Reserve Board and the Federal Reserve Bank of New York, identified the Secured Overnight Financing Rate (SOFR) as an alternative reference rate to replace LIBOR. The agency believes that SOFR is the most appropriate rate for widespread and long-term adoption because it is based on observable, objective, and transparent interest rate transactions. However, banks are considering additional options for use in the U.S.

SOFR is based on overnight transactions in the U.S. dollar Treasury repurchase market (Repo). It is the largest rates market at a given maturity in the world, averaging roughly $1 trillion of transactions every day.2

Term SOFR was created in response to borrowers and lenders preferring a term style rate that was more operationally similar to LIBOR. Term SOFR is approved by ARRC and published by the CME Group.

Key Differences

LIBOR SOFR Term SOFR3
Daily average of what banks say they would have to pay to borrow from another bank over a given term (i.e., one-month and three-month). Index based solely on actual overnight transactions collateralized by Treasuries. There is currently no term structure associated with the SOFR rate. Calculated by CME from SOFR based derivative contracts and adjusted for the term of the SOFR contract.
Inherently forward looking; borrower knows at the beginning of the period what the interest rate will be over the term. Backward looking because it uses transactions from the previous night; rate changes daily. Inherently forward looking; borrower knows at the beginning of the period what the interest rate will be over the term.
Bank-to-bank lending is unsecured; includes a small credit risk premium/spread. Transactions are secured by Treasuries; lacks a credit risk premium/spread. Transactions are secured by Treasuries; lacks a credit risk premium/spread.

SOFR vs. LIBOR Rate Comparisons

SOFR is published daily by the Federal Reserve Bank of New York and may be more volatile than the one-month LIBOR. However, over time SOFR is reasonably comparable to short-term LIBOR indices. The gap between LIBOR and SOFR is primarily made up by a credit risk premium spread.4

1-month LIBOR vs daily SOFR

1-month LIBOR vs 1-month compounded SOFR

Source: Pensford, "LIBOR vs. SOFR"

How SOFR Is Calculated

SOFR includes all trades in the Broad General Collateral Rate, plus bilateral Treasury repurchase agreement transactions cleared through the Delivery-versus-Payment (DVP) service. The DVP is offered by the Fixed Income Clearing Corporation (FICC), which is filtered to remove a portion of transactions considered “specials,” that are repurchases for specific-issue collateral.5

SOFR is calculated as a volume-weighted median of transaction level data observed over the course of a business day and is published on the Federal Reserve Bank of New York website at approximately 8:00 a.m. ET on the next business day. The SOFR published on any given day represents the rate repurchase transactions entered into on the previous day. The date associated with each rate reflects the date of the underlying transactions rather than the date of publication.6

For more detailed information about SOFR and how it is calculated, visit the Federal Reserve Bank of New York website.

For Our Synovus Customers

Synovus is committed to making this migration as seamless as possible for our customers and will communicate additional details as they become available.

If you have a commercial loan or obligation tied to LIBOR that matures after the LIBOR cessation date,7 a Synovus Relationship Manager will contact you to discuss the successor rate when there is greater clarity as to successor indices.

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. There may be changes to the LIBOR transition timeframe set forth above and, as a result, the information presented herein is subject to change without additional notice. Back
  2. Alternative Reference Rates Committee, “An Updated User’s Guide to SOFR,” Back
  3. https://www.cmegroup.com/market-data/files/cme-term-sofr-reference-rates-benchmark-methodology.pdf Back
  4. Pensford, “LIBOR vs. SOFR,” Back
  5. Alternative Reference Rates Committee, “An Updated User’s Guide to SOFR,” Back
  6. Ibid Back
  7. Financial Conduct Authority, “Announcements on the End of LIBOR,” May 3, 2021 Back