Plan to end Libor pricing for new loans by September could prove difficult

LONDON (Reuters) – Reaching a target to end the use of Libor to price new loans by September could be difficult for some companies struggling with the coronavirus, the Financial Conduct Authority (FCA ) British.

FILE PHOTO: A security guard stands outside the Bank of England, as the spread of coronavirus disease (COVID-19) continues, in London, Britain March 23, 2020. REUTERS / Toby Melville / File Photo

The Libor, or London Interbank Offered Rate, is a benchmark interest rate used in contracts worth approximately $ 400 trillion around the world. But the benchmark is being removed after banks were fined billions of dollars for trying to rig it.

The FCA has set December 31, 2021 as the full end date for Libor use. To achieve this, however, banks would need to stop pricing new loans against Libor by September 30, 2020.

Ending its use is one of the most important tasks that the markets have faced in decades, as contracts are replaced by alternatives compiled by the central banks of Great Britain, the United States and the United States. eurozone.

The FCA said it had held talks with the Bank of England and an industry task force on the impact of the coronavirus on ending Libor use.

“The central assumption that businesses cannot rely on the release of Libor after the end of 2021 has not changed and should remain the target date that all businesses must meet,” the FCA said.

“However, there has been an impact on the timing of some aspects of many companies’ transition programs… This will likely affect some of the intermediate stages of the transition.”

Regulators and an industry task force had agreed that new loans should be priced with Sonia, an overnight interest rate compiled by the Bank of England, starting in the third quarter.

The aim is to minimize loans valued against Libor beyond 2021 as much as possible. A similar milestone for swaps was taken this month.

“Along with other international authorities, the Bank of England, FCA and the task force will continue to monitor and assess the impact on transition times and update the market as soon as possible,” said the FCA.

Libor is compiled by banks submitting quotes to an independent administrator.

Market participants do not expect the 2021 deadline to change, as banks have only agreed to continue submitting quotes until that date and the use of alternatives will have increased significantly. ‘here there in the new contracts.

“The Libor transition is not like other deadlines, as the end of Libor at the end of 2021 depends on further submissions by the panel banks,” said Ann Battle, deputy general counsel and head of reform benchmarks to the International Swaps and Derivatives Association.

The FCA has said it will not require banks to submit quotes after the end of 2021 and that market participants cannot assume that Libor will continue after that date.

Reporting by Huw Jones; Editing by Carolyn Cohn and Edmund Blair

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