The Financial Stability Board ("FSB") urged market participants to continue working to remove remaining dependencies on LIBOR by the end of 2021. The FSB acknowledged that "some aspects of firms' transition plans are likely to be temporarily disrupted or delayed."
In a statement, FSB said that the COVID-19 pandemic highlighted that (i) the underlying markets which LIBOR aims to measure are insufficiently active, and (ii) such markets are not the primary markets relied on by banks for funding. FSB noted that heightened use of the most "widely used" LIBOR rates has placed "upward pressure" on the cost of financing those paying LIBOR-derived rates. Specifically, FSB found that this upward pressure has largely offset the impact of the reduced interest rates in areas where central banks decreased policy rates.
In addition, FSB urged market participants to continue working to make wider use of risk-free rates and to reduce reliance on IBORs "where appropriate." FSB also indicated that it will publish a report later this month on the remaining challenges for benchmark transition, in response to a G20 request.
Commentary
The FSB statement is essentially consistent with the Financial Conduct Authority statement that market participants should continue to expect that LIBOR will be gone by January 2021.
Primary Sources
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
