A rate manipulation scandal in 2012, a trickling liquidity in the underlying market, and a decision in 2017 by the UK Financial Conduct Authority (FCA) … These are three blows to financial history’s most important reference interest rate, the London Interbank Offered Rate (Libor).
This, and a lot more, is to read in a detailed article on The Global Treasurer’s news site.
Two and a half years to go
Ahead of the end of 2021 – when banks will no longer be required to participate in its submission process – market authorities around the world are now working to identify alternative risk-free reference rates (RFRs) to replace the Libor.
And, in fact, in a number of jurisdictions such have already been launched.
“As a tried-and-tested benchmark for short-term interest rates, Libor measures the average rate at which banks are willing to borrow wholesale, unsecured funds – which is why it underpins around $300 trillion worth of financial contracts, derivatives, bonds and loans,” writes The Global Treasurer.
“Because there are so many financial instruments tied to Libor, it goes without saying the rate is heavily embedded within the operating models of a huge number of organisations. Transitioning to alternative rates won’t be easy, and it’ll have serious implications on how contracts are priced and how treasurers manage risk.”