November 28, 2017 - As reported by Bloomberg, the Financial Conduct Authority (FCA) took a step that should help alleviate concerns about the medium term viability of the London interbank rate (LIBOR). The U.K. financial services regulator last Friday confirmed that all 20 banks that participate in LIBOR rate setting have agreed to support the rate through 2021 and will work towards developing an alternative benchmark. The FCA has been working with the banks to finalize an agreement for them to remain on the panels they currently submit to until the end of 2021, it said in a statement.
This development is important because Andrew Bailey, the head of the FCA, said in a speech in July that the regulator would no longer compel banks to participate as LIBOR banks after 2021 after it became clear there wasn’t enough meaningful data to sustain the benchmark that underpins more than $350 trillion in securities (as well as virtually all syndicated loans). In addition to worries about what would replace LIBOR, many market participants also raised concerns about the viability of the old rate during the transition period, especially if a number of the LIBOR banks were to decide to opt out of the program before a new benchmark is put into place. The FCA’s statement appears to address those concerns.
As noted in a series of posts, the LSTA is actively engaged in the transition process from LIBOR to a new benchmark and will continue to report and comment on important developments.