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Banks told to 'hit the accelerator' in ditching Libor rate

05/10/2021 10:31
Banks told to 'hit the accelerator' in ditching Libor rate

By Huw Jones

- Britain's finance watchdog wants banks to speed up a shift to new interest rate benchmarks that replace the Libor rate which is being scrapped after December.

The London Interbank Offered Rate or Libor, once dubbed the world's most important number, will be replaced at the end of December with "risk free" rates compiled by central banks.

Banks were fined for trying to rig Libor, and swathes of the market used for compiling Libor has all but dried up.

But replacing Libor, used in contracts from home loans to credit cards and derivatives worth more than $200 trillion globally, is still the biggest task faced by markets in decades.

"Across the board I see transition as getting close to completion or a very strong growth trend to getting that done," Edwin Schooling Latter, director of markets at Britain's Financial Conduct Authority, told an ISDA derivatives industry conference.

"The time has come to put the foot on the accelerator."

The FCA is allowing a "synthetic" version of Libor to continue after December, but to avoid markets using it as an excuse to ease up on transition, it will only apply for a limited period and range of sterling and yen Libor contracts.

Derivatives contracts that have been cleared will not be eligible, Schooling Latter said, adding that he was "absolutely not giving a promise" that uncleared derivatives contracts would be eligible.

"We will test market views on that," he said.

Tom Wipf, vice chairman at Morgan Stanley MS.N and chair of U.S. markets body ARRC for ending the use of Libor, said he was optimistic on scrapping the rate within the timelines.

Although some dollar Libor rates will continue to be published until June 2023, U.S. regulators have clarified there should be no new contracts referencing Libor after Dec. 31 this year, Wipf said.

ARRC has recommended stopping the use of Libor in new contracts after June this year. "Between June and December... we should see a pretty meaningful transition," Wipf said.


(Reporting by Huw Jones. Editing by Jane Merriman)

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