LIBOR rate to end in 3 weeks

The LIBOR rate will make its final appearance on New Year’s Eve. 

The Swiss franc LIBOR, euro LIBOR and the panel bank rate for Japanese yen will also end. New use of US dollar LIBOR will also to cease. 

Edwin Schooling Latter, FCA director of markets and wholesale policy and wholesale supervision, confirmed the long-planned changes at a keynote speech delivered this week at a Risk.net conference.

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He said tens of thousands of firms and authorities, here and overseas, have been preparing for the changes with the “common aim” of minimising disruption from the retiring of a benchmark rate widely used in banking and in financial markets including the mortgage market.

The rate is also used in interest rate derivatives, bonds and securitisations, loans and other products.

Mr Schooling Latter said that many organisations had now switched to the Bank of England-administered rate SONIA (Sterling Overnight Index Average).

He added that in some markets LIBOR use had declined as preparation for the switch off of LIBOR was made. New issues referencing sterling LIBOR diminished to “a trickle” by autumn 2019, and to zero since October 2020. 

In the UK mortgage market, there was only a relatively small pocket of legacy LIBOR loans – about 1 in 100 residential mortgages, and 1 in 20 buy-to-let mortgages: around 200,000 contracts in total, he said.

He added that based on a membership survey conducted by UK Finance earlier this year, around two thirds of responding firms that hold sterling LIBOR mortgages were confident their legacy books would be transitioned to alternative rates – SONIA or Bank Rate – by the end of 2021, in both the retail and buy-to-let areas. 

For those firms slow to reduce reliance on LIBOR new ‘synthetic’ LIBOR rates will be published for the duration of 2022.

He added: “While it is probably realistic to expect a bit of clearing up to be completed when the New Year dawns – notably of those legacy LIBOR contracts – the many years of preparations that industry has made will have much reduced the prospect of too big a hangover.”

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