U.S. Markets

Regulators urge big push to ditch Libor by end 2021

LONDON (Reuters) - Global financial regulators set out recommendations on Thursday for coordinating and speeding up preparations to scrap Libor, an interest rate benchmark banks were fined billions of dollars for trying to rig.

The Financial Stability Board (FSB), which coordinates financial rules for the Group of 20 Economies (G20), surveyed the readiness of countries, banks and companies for getting rid of the benchmark by the end of 2021. Libor is currently used for pricing credit cards, home loans, company loans and derivatives worth trillions of dollars.

National regulators should issue public statements to promote awareness of that Libor is on its way out, help to create a formal roadmap for scrapping the rate, and promote industry wide coordination, the FSB said.

Without adequate preparation, ending Libor would have a “significant negative impact” on financial and non-financial companies given there are many contracts that still mature beyond December next year, when the rate may no longer exist.

“Authorities may need to fundamentally review their readiness to implement some of the recommendations in this report, and, if necessary, revise their plans accordingly to be prepared to work on an even more compressed timeline when the pandemic situation has stabilised,” the FSB said.

Some market participants had hoped that disruption from the COVID-19 pandemic would force regulators to push back the end 2021 cut off date for Libor but this not happened so far.

The FSB said global exposure to dollar Libor in particular was an issue of increased concern and attention on the part of authorities given the size of exposures.

Regulators want Libor replaced with “risk free rates” or RFRs compiled by central banks, like Sofr in the United States and Sonia in Britain.

“Lack of liquidity in new RFR products and the uncertainty of when sufficient liquidity will be achieved make it difficult to motivate market participants to shift to RFRs,” the FSB survey found.

The FSB said it will design indicators to update global Libor exposures and assess progress with transition by early next year.

(Graphic: FSB Libor Graphic, )

Reporting by Huw Jones. Editing by Jane Merriman