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By John Hintze
In March 2021, the administrator of the London Interbank Offered Rate made it official: certain tenors of U.S. dollar Libor would cease to publish on Dec. 31, 2021, with remaining settings terminating on June 30, 2023, for legacy transactions. With the long-telegraphed Libor endgame now set in stone, banks are picking up the pace of transition amid front- and back-end challenges.
One concern held by community, midsize and regional banks that use Libor is that the Secured Overnight Financing Rate, the favored alternative of the Alternative Reference Rate Committee, a public-private group convened by the New York Fed, is that it does not reflect credit risk. In times of market stress, investors flocking to the risk-free rate would cause it to plummet, along with the banks’ returns on SOFR-priced loans, while their cost of funds jumps a bank nightmare.
April 5, 2021 | 12:02 am Font Size
REUTERS
JAPAN is emerging as a key area of concern in the global migration away from the London interbank offered rate (Libor).
With just nine months until yen Libor is phased out, only a fraction of the roughly Y3 quadrillion ($27 trillion) in derivatives pegged to the discredited benchmark have switched to alternative reference rates. A further $150 billion in cash products such as loans and floating-rate notes many of which can’t be easily shifted to new benchmarks aren’t due to mature until after Libor expires, Fitch Ratings says.
As the deadline nears, worries are mounting that the country could face a disorderly transition come yearend marred by technical problems, legal disputes and increased interbank rate volatility. Global regulators overseeing Libor’s end announced in March that they were considering the creation of a ‘synthetic’ yen rate as a stopgap measure to allow more so-called tough legacy contracts to ro
The London Interbank Offered Rate (LIBOR) is being phased out and replaced by risk-free rates globally. The Office of the Comptroller of the Currency recently issued a self-assessment tool to help national banks, federal savings associations and federal branches and agencies of foreign banking organisations evaluate their preparedness for LIBOR's expected cessation.
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Welcome back to our Interest Rates Watch series, developed to
provide timely updates and practical advice on developments related
to interest rates and benchmarks on a regular basis. As always, we
are here to help.
BACKGROUND
What Happened?
Having been introduced by Governor Cuomo earlier in January, on
March 24, 2021, the New York State Legislature passed a LIBOR
discontinuance bill
1 (the LIBOR Transition Legislation).
This bill is based on the Alternative Reference Rates Committee
(ARRC) updated proposed LIBOR transition legislation. On March 6,
2020, ARRC first proposed language for a legislative approach to
A $27 Trillion Challenge Looms as Yen Libor Shift Nears yahoo.com - get the latest breaking news, showbiz & celebrity photos, sport news & rumours, viral videos and top stories from yahoo.com Daily Mail and Mail on Sunday newspapers.