3/5/2021 Britain’s financial regulators on Friday called a formal halt to nearly all Libor rates from the end of this year, as expected, piling pressure on markets to speed the switch in interest rates used in $260 trillion of contracts around the world.
3/2/21 Bloomberg: Banks have less than a year before the Fed has indicated it will stop allowing them to enter into new contracts pegged to Libor, a bedrock of the financial system being phased out by global policy makers due to a lack of underlying trading and following a high-profile rigging scandal. Still, the rate -- which underpins trillions of dollar of assets -- has proven difficult to dislodge. Officials last year indicated they would delay the end of certain tenors by 18 months amid concerns over financial stability stemming in part from the industry’s lack of preparation.
Bloomberg: Libor has been dubbed “the world’s most important number” for good reason.
It’s used to set interest rates on a giant swath of financial assets, from floating-rate notes and collateralized loan obligations to complex derivatives. But it’s not just Wall Street that depends on the benchmark.
Everything from mortgages, student loans and credit card rates are tied to Libor as well.
That makes its replacement one of the most significant developments in financial markets, well, ever.
Officials around the world are creating and promoting a slew of alternative rates. Investors and corporate treasurers are re-writing financial contracts to ensure that millions of deals don’t eventually turn into a chaotic, lawsuit-riddled mess. And bankers are reviewing portfolio exposure and retooling trading systems to try to ensure a smooth transition.
While most Libor rates will be phased out at the end of 2021, the sheer enormity of the task - made more difficult by the coronavirus pandemic - has prompted global regulators to delay the timeline for abandoning some of the beleaguered benchmark’s fixings until mid-2023.
Still, as the clock ticks down, there are significant hurdles that need to be overcome to make sure the transition goes off without a hitch.
8/3/2020 Economist:Today the Bank of England started publishing compound average rates for SONIA, a benchmark interest rate designed as a sterling replacement for the now ill-favoured LIBOR. Notionally, LIBOR, which underpins $200trn-plus of derivatives and loans in five currencies, is the rate at which certain banks are willing to lend to each other for up to a year. Long popular, a rate-fixing scandal sullied it. But even before that its foundations were flimsy—often guesses rather than actual transactions. It is due to be discontinued at the end of next year. By then central banks want markets to use new benchmarks based on overnight rates. But banks, and their clients, have to get moving. One obstacle is that overnight rates lack LIBOR’s built-in term structure (eg, three- and six-month rates). So regulators are constructing their own. The New York Fed started publishing its dollar equivalent of the SONIA averages in March. The post-LIBOR world is coming.
7/7/2012 Economist: What may still seem to many to be a parochial affair involving Barclays, a 300-year-old British bank, rigging an obscure number, is beginning to assume global significance. The number that the traders were toying with determines the prices that people and corporations around the world pay for loans or receive for their savings. It is used as a benchmark to set payments on about $800 trillion-worth of financial instruments, ranging from complex interest-rate derivatives to simple mortgages. The number determines the global flow of billions of dollars each year. Yet it turns out to have been flawed.