It is time to pick up the pace on Libor transition
Cash borrowers want forward-looking reference rates to transition to after Libor and the market is struggling to come up with them.
There are many things to worry about in the capital markets, but the sluggish pace of the transition to new risk-free rates (RFRs) must be pretty high on everyone’s agenda at this stage.
It is certainly high on the agenda of Matthew Lieber, director of capital markets and institutions, markets group, Federal Reserve Bank of New York.
“Systemic risk is growing with each new contract entered into under Libor,” he declared at the ICMA AGM in Stockholm in May.
At mid-2018, around $400 trillion of financial contracts referenced Libor in one of the major currencies, according to the Bank for International Settlements.
Banks will no longer be required to submit Libor rates after 2021 and the scale of the challenge is eyewatering.
Experts tell Euromoney that market participants will need a minimum of six to 12 months on the negotiating process when they transition to a new RFR, but they can’t even start those negotiations until there is a stable market in the rate that they want to transition to.
Libor is due to be discontinued in 30 months’ time, so you do the maths.