Libor Benchmark Reform: Recipes for Success & Disaster
5 Pages Posted: 10 Apr 2020
Date Written: March 16, 2020
Libor is arguably the world’s most important number with more than USD 350 trillion of loans and financial contracts referencing this rate. Libor benchmark interest rates are being replaced with alternative reference rates (ARRs). There is no guarantee Libor rates will continue to be quoted beyond 2021.
In this paper we give an overview of Libor benchmark reforms and assess its impact on financial services. We consider the structural changes to the new ARR benchmarks and highlight litigation risks when migrating existing financial contracts referencing Libor.
Finally we conclude with 3 recipes of how to implement Libor reform based on robust, last-minute and no preparation. Whilst some may find the recipes humorous it is no laughing matter. We encourage financial service providers to be well prepared for the upcoming broad-sweeping industry changes and the associated risks.
Keywords: Libor, Libor Benchmark Reform, Alternative Reference Rates, ARRs, IOSCO Standards, ISDA Protocol, Fall-backs
JEL Classification: C02, C23, C54, C61, E27, E37, E43, E44, E47, E52, E58, F37, F38, G12, G15, G21, G24, G28
Suggested Citation: Suggested Citation