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Why Libor Will Disappear—and What It Means for You

Libor is sometimes called the “world’s most important number.” The London Interbank Offered Rate (Libor) is everywhere in the financial landscape. It is the reference interest rate in a wide range of wholesale and retail financial products, the total notional outstanding value of which exceeds $240 trillion.

除了公司和机构之外,据估计,超过1500万人的个人客户目前使用基于LIBOR的金融产品。

LIBOR也用于非金融合同中的风险,估值和会计模型,包括延迟支付条款,并作为衡量回报和资金成本的绩效基准。Libor渗透到全球金融界的程度难以夸大。

Is Libor Facing Extinction?

However, Libor is facing a fundamental challenge. The banks that submit loan rates are supposed to submit interest rates that they would pay for borrowing from other banks. But since there are few unsecured bank-to-bank lending transactions, they use “expert judgment” to provide most of their inputs for Libor calculation.

After paying penalties near $10 billion for Libor manipulation in the着名的Libor Scandal.of 2012, the submitting banks are now vividly aware of the risk of relying so heavily on expert judgment.

同样缺乏交易导致了分辨asing regulatory pressure to end the use of Libor altogether. In fact, the UK’s Financial Conduct Authority announced that after 2021, it will no longer “compel or persuade” banks to submit rates.

LIBOR超越2021年的延续将依靠小组银行的自愿提交,这远未确定。

What Are the Other Options?

为了响应LIBOR的可能停止,工作组正在换取替代参考速率(see Figure 1)。然而,替代方案与Libor和彼此的根本不同。这意味着过渡将不仅仅是一个行政挑战。

无花果ure 1: Alternative Reference Rates Overview

首先,拟议的替代参考率都是隔夜速率,而Libor已发布多个术语 - 最常见的是单,三个月和六个月的术语。正在考虑替代方案的术语结构,但目前没有存在,并不清楚将如何计算它们。

Second, Libor includes bank credit risk, while the alternatives are much closer to “risk-free.” Without the embedded credit risk, a simple conversion of Libor to alternative rates is not possible. Consider a contract that sets an interest payment at GBP three-month Libor + 100 basis points (bps). This cannot be translated into a contract referencing SONIA that will give rise to the same future payments, because while the average difference between these rates has been only about 30 bps, the difference between the two rates has varied significantly over time. Indeed, over the last 10 years, that difference was close to 400 bps in some instances.

Finally, the alternatives for the five Libor currencies differ from each other. The rates measure country-specific markets with some (i.e., SOFR and SARON) secured, while others (i.e., SONIA and TONAR) are unsecured. Transition timelines and the potential development of term alternative rates also vary across each rate. This may give rise to basis risk, particularly for end-users with cross-currency holdings.

财务的重大变革

远离LIBOR将成为金融机构的主要事业;一些公司估计过渡的成本在2亿美元的地区。需要解决的一些挑战包括:

  • 开发非LIBOR产品。As some of the alternative rates are very new (e.g., SOFR), there are few or no products that currently use them. Financial markets cannot transition from Libor until similar products that do not use Libor are developed and adopted.
  • 解决Libor和替代方案之间的材料差异。This will change the expected cash flows and risk from contracts (products) based on them. Changes to valuation tools, product design, hedging strategies and funding are inevitable and must be carefully designed and implemented.
  • Managing large number of counterparties and end users impacted.Financial institutions will need to communicate carefully with their clients and manage them through the transition, while minimizing conduct risk in the process (e.g., by selling long-dated products now with the knowledge that Libor may end).
  • Redefining fall-back provisions in current contracts.现有规定通常旨在处理参考利率而不是永久性停止的临时不可用,并依靠这些规定来改变产品经济学并创造财务和运营风险。

And It’s Not Just Libor …

在欧元区,另外两台基准 - 欧元间银行间提供的费率(欧元英国)和欧元过夜指数平均值(eonia) - 也是至关重要的。虽然EUR-LIBOR Underpins〜2万亿美元的财务合同,但在欧元博士和埃加尼亚一起被用作〜175万亿美元的优秀合同,包括芬兰,西班牙和意大利的住宅抵押贷款。

Like Libor, they face an uncertain future, with similar repercussions to financial firms, as neither is currently compliant with benchmark regulations:

  • Euribor将在2012年1月1日结束的过渡窗口中发展符合过渡窗口的合规性。成功的改革很可能,但不确定 - 没有明确的替代方案,在这种情况下,将需要过渡。
  • On the other hand, compliance with regulations is not possible for Eonia. This means that an alternative will be required, however none has been agreed on yet.

工作组希望推荐欧元和欧洲欧元的替代欧元风险免费参考利率。

Firms with ongoing Libor transition efforts should be able to create synergies by drawing all reference interest rate work into a coordinated response. However, the timelines for Euribor and Eonia transition are arguably tighter and more rigid than the Libor timelines, while the alternatives are less clear.

What Does It All Mean for You?

Approximately, 15 million retail customers globally currently use financial products based on Libor, in addition to most corporates and financial institutions. The payments for these customers may change as a result of this transition, and client notification, education, and relationship management will be important. Banks and their customers will need to:

  • Understand the fall-back provisions, which will determine what happens if Libor ceases to exist. For example, a variable-rate mortgage might change to a different benchmark rate which is significantly higher.
  • 准备进行对话以重新谈判合同条款。
  • Proactively ask about Libor alternatives if renewing or purchasing new financial products.

The transition away from Libor will start to happen quickly, and all impacted parties will need to work together to make it a success.

Adam Schneider

合作伙伴,零售和商业银行和Digital在Oliver Wyman

Adam Schneider is a partner in Oliver Wyman’s Digital and Banking Practices in the Americas. He focuses on large scale transformations in the industry and related development and execution of corporate strategy.

PIN SU.

Associate, Corporate & Institutional Banking at Oliver Wyman

Pin Su是奥利弗·威曼公司和机构银行业务的助理。

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