In 2017, in response to the decline in eligible term borrowing transactions underlying the London Interbank Offered Rate (LIBOR) and with little prospect of these markets becoming substantially more active in the near future, the UK Financial Conduct Authority announced that it no longer would compel panel banks to quote LIBOR after December 31, 2021.
The transition from LIBOR to alternative benchmark interest reference rates is shaping up to be one of the most fundamental changes to the financial services industry in recent times. LIBOR is used in more than $300 trillion of mortgages, commercial loans, bonds and derivatives, with interest rate derivatives accounting for nearly 90 percent of the outstanding gross notional value of financial products that reference LIBOR.
The problem is global and complex—involving regulators and trade organizations across dozens of countries and currencies—and time is running out. Affected banks, insurers and other financial market participants need to act quickly, and effectively, to avoid adverse consequences. Adding to the complexity is the material distraction of and diversion of resources due to the COVID-19 pandemic.
Here are our top 10 key thinking’s on the IBOR Transition: