Many of the world’s largest corporations are yet to sign up to a crucial derivatives market initiative designed to ease the transition away from Libor, underlining the challenges regulators still face in eradicating the controversial reference rate.
Diageo, Tesla and Walmart are among the companies that haven’t adhered to the International Swaps and Derivatives Association’s fallbacks protocol, a mechanism that allows various Libors to be replaced in old derivatives trades once these rates cease to exist. That stands in stark contrast to widespread take-up of the protocol among financial institutions.
Many multinationals say they are preparing for the Libor transition and some note there are good reasons they haven t signed the ISDA protocol, including Libor s still dominant role in US debt markets. The amount of financial contracts tied to US dollar Libor has actually increased by 12% since 2016 to US$223trn, according to a recent industry report.
LIBOR s Long Good-Bye | Allen Matkins
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Federal Home Loan Bank of Boston Announces 2021 First Quarter Results, Declares Dividend
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Federal Home Loan Bank of Boston Announces 2021 First Quarter Results, Declares Dividend
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Wednesday, April 21, 2021
Ready or not, borrowers are involuntarily seeing changes in the interest rates they are being charged. Why, you ask? Because there are serious, systemic risks associated with the most widely used interest rate basis in the world – the London Interbank Offered Rate (or LIBOR), including the LIBOR Rate for U.S. Dollar denominated loans and other financial products (USD LIBOR). The situation is so serious that regulatory authorities have said that “given consumer protection, litigation, and reputation risks, [they] believe entering into new contracts that use USD LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks . . .”. In our view, all of this means that borrowers should prepare themselves to deal with forthcoming interest rate changes in as effective a manner as possible (and not wait until the inevitable occurs later this year).