In June 2012, Barclays agreed to pay $450 million to US and UK authorities. It admitted that its staff had submitted false figures for LIBOR, the interest rate behind an estimated $200 trillion of US dollar contracts. Six months later, UBS agreed to pay $1.5 billion.
US dollar LIBOR ended on 30 June 2023. SOFR replaced it, a rate built from about $3 trillion of real trades a day. Here is what each rate is, why one replaced the other and how SOFR behaves.
What is SOFR? The Secured Overnight Financing Rate (SOFR) is the cost of borrowing cash overnight with US Treasury bonds as collateral. The New York Fed publishes it each business day, from actual trades.
LIBOR was built from banks' estimates of what they would pay to borrow from each other, with no collateral.
SOFR was 3.87% on 1 October 2026, based on $3,067 billion of trades.
Since April 2018, SOFR has differed from the Effective Fed Funds Rate by 0.002 points on average.
What LIBOR was
LIBOR stands for the London Interbank Offered Rate. Each morning, a panel of large banks told the administrator what rate they would pay to borrow from other banks, unsecured.
The highest and lowest answers were dropped. The average of the rest became LIBOR. It was published for several currencies and for terms from overnight to one year.
Loans, bonds and derivatives used it as their reference rate. The Alternative Reference Rates Committee (ARRC), a group convened by the Fed, put the total at about $200 trillion of contracts in US dollars. That was about ten times US GDP.
The weak point was the inputs. Few real loans stood behind them. The ARRC found that even after reforms, banks still relied on expert judgment for most of their submissions.
The LIBOR scandal
Estimates can be bent. Two settlements in 2012 showed how:
Barclays, 27 June 2012: $450 million. That was $200 million to the US Commodity Futures Trading Commission, $160 million to the US Justice Department and $92.8 million to the UK's Financial Services Authority. Barclays admitted false submissions to help its traders' positions. During the financial crisis, it also submitted low figures to look healthier.
UBS, 19 December 2012: $1.5 billion, to authorities in the US, the UK and Switzerland.
The switch from LIBOR to SOFR
The move took six years:
June 2017. The ARRC chooses SOFR.
April 2018. SOFR is first published. CME lists SOFR futures in May.
End of 2021. US banking regulators had urged banks to stop writing new US dollar LIBOR contracts by this date.
March 2022. The LIBOR Act becomes law. It moves old US contracts with no workable fallback onto a SOFR-based rate.
30 June 2023. The US dollar LIBOR panel ends.
How SOFR is built
A repo is an overnight loan of cash, backed by bonds. We explain the market in What Is the Repo Market?
SOFR measures what borrowers pay in overnight Treasury repo. The New York Fed collects every eligible trade from three parts of the market.
The New York Fed then takes the volume-weighted median: the rate at which 1/2 of the money lent was at a lower rate and 1/2 at a higher one. The rate is published at about 8am Eastern time the next business day.
The New York Fed first published SOFR on 3 April 2018, at 1.83%.
Source: FRED (SOFRVOL, EFFRVOL); YX Insights
On that first day, SOFR rested on $825 billion of trades. On 1 October 2026, the figure was $3,067 billion. The market behind the Effective Fed Funds Rate, the rate banks pay each other for unsecured overnight loans, saw $120 billion that day.
SOFR vs LIBOR: the main differences
LIBOR | SOFR | |
|---|---|---|
Based on | Banks' estimates | Real trades |
Collateral | None (unsecured) | US Treasury bonds |
Terms | Overnight to 12 months | Overnight |
Bank credit risk | Included | Almost none |
Source: Alternative Reference Rates Committee; New York Fed
Because LIBOR was unsecured, it could rise when banks looked risky. SOFR has Treasury bonds behind every loan, so it carries almost no credit risk.
Many loans need a rate fixed in advance for one or three months. For those, there are term rates built from SOFR futures, such as CME Term SOFR. We explain SOFR futures in What Are Fed Funds Futures?
How SOFR behaves
Source: FRED (SOFR, EFFR); YX Insights
SOFR and the Effective Fed Funds Rate move almost as one. Since April 2018, the mean gap between them, ignoring its sign, has been 0.034 points. We explain the Fed Funds Rate in What Is the Fed Funds Rate?
Two kinds of day break the pattern:
Cash shortages. On 17 September 2019, SOFR jumped from 2.43% to 5.25%. The Fed Funds Rate rose only to 2.30%.
Quarter-ends. On 30 September 2026, SOFR was 3.90%. The next day, it was 3.87%.
LIBOR asked banks what they would pay. SOFR records what borrowers did pay, on loans backed by Treasury bonds.
Learn more with YX Insights
This explainer is part of the YX Insights Academy. Each one takes a single idea and checks it against real data.
The same approach runs through everything else we publish:
Systematic Portfolio: ready-made portfolios for Macro & Megacaps and for Commodities. We publish the holdings and every change.
Multi-model Signals: a daily long-or-flat call on every name we cover. Each call shows how strongly our four models agree.
Research: company deep dives, macro commentary and essays on how we test.
Good places to start on the website:
Academy: more explainers like this one.
Start here: get our free weekly letter by email.
Macro & Megacaps Systematic Portfolio and Commodities: the two portfolios in detail.
Track record: live results since 3 August 2026, plus the ten-year backtest.
Upgrade: get the Systematic Portfolio, Multi-model Signals and research in full.
DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.