Why Lenders Are Moving from LIBOR to SOFR to Set Interest Rates

Consistent with other lenders nationally and worldwide, Bell Bank is moving toward using the Secured Overnight Financing Rate (SOFR), instead of the London Interbank Offered Rate (LIBOR), as the benchmark index (along with the federal prime interest rate in the U.S.) for setting short-term interest rates.

With lower transaction volumes in the markets on which LIBOR is based, a lack of data used to determine the rate has impacted LIBOR’s credibility. Instead of being based on transactional data, LIBOR today is based on recommendations from a panel of banks.

There are several options to replace LIBOR. However, SOFR is the top recommendation of the industry group named by the Federal Reserve to lead the transition away from LIBOR.


How is SOFR different from LIBOR?

Secured by U.S. Treasuries, SOFR is based on more than $1 trillion in transactions daily and operates on the U.S. dollar (USD) currency. LIBOR is unsecured, based on far more limited data with $500 million in daily transactions, and has other currency options in addition to the U.S. dollar.


SOFR vs. LIBOR Snapshot


Understand the Transition

For more details on the transition from LIBOR to SOFR, see our Frequently Asked Questions below. For questions on how to best prepare your business, reach out to your Bell Bank commercial banker.



How will using SOFR impact lending rates?

For comparison as of Nov. 1, 2021, LIBOR and SOFR rates have been performing within 3 basis points of each other. (Currently, you can compare the rates in the Wall Street Journal, where they’re published daily.)

How is Bell preparing for the transition?

At Bell Bank, we are including language about SOFR in any new business ownership or credit agreements. We are also introducing “fallback” language, hardwired into existing contracts. That language sets up the transition to a new benchmark rate (LIBOR will go away completely in late June 2023), so no additional amendments to the contract will be needed.