June 10, 2020 / 4:44 PM / a month ago

Big banks say pandemic will not be stay of execution for Libor, study says

LONDON (Reuters) - Big banks are on track to ditch the Libor interest rate by the end of 2021 despite the coronavirus pandemic, though their European and U.S. clients are dragging their feet, a study showed on Wednesday.

Regulators want the London Interbank Offered Rate or Libor scrapped after banks were fined billions of dollars for trying to manipulate a rate still used to price contracts worth about $400 trillion globally.

The transition to rates set by the Bank of England and the U.S. Federal Reserve is one of the biggest tasks faced by markets in decades.

Market disruption from the pandemic has raised questions about the end 2021 deadline, but regulators have reaffirmed it in recent weeks even though some of milestones have been pushed back.

“While challenging, most of the respondents said they were on pace in terms of operational and technological readiness; a few smaller firms saw the transition timeline as too aggressive to meet,” the report from Sia Partners consultancy said.

It spoke with more than 70 market participants between April and June, including U.S. and foreign banks, asset managers, insurers, to check if the pandemic has derailed efforts to end the use of Libor.

A small minority of the firms expected a delay in the cessation, while less than a quarter wanted a delay.

There was also a “sustained lack of either motivation or resource commitment by a myriad of client types to invest in their transition process”.

Most firms said legislation would keep transition on track by mandating which alternative rate must be used in a contract after Libor ends, the report said.

U.S. industry groups are trying to persuade New York State lawmakers to approve such a law, while in Britain regulators are resistant.

Reporting by Huw Jones; Editing by Angus MacSwan

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