There are now real concerns about the sustainability of certain IBORs due to a significant decline in activity in the unsecured bank funding market that they are supposed to represent.
Significant work has been conducted by global regulators and the public-/private-sector risk-free rate (RFR) working groups to identify alternative, nearly risk-free rates and plan for a transition to those rates as appropriate.
This global effort reflects recognition that any transition to alternative RFRs is a larger undertaking than any single private or public institution is capable of delivering, and requires coordinated efforts in order to succeed.
This does not mean that individual institutions can afford to hold off taking action. In a speech on July 27, 2017, Andrew Bailey, Chief Executive Officer of the UK’s Financial Conduct Authority (FCA), stressed that each individual firm should take responsibility upon themselves.
The time for market participants to act is now. Each firm needs to understand the scale of its exposure to IBORs and formulate strategies to reduce it. This includes allowing existing IBOR exposures to roll off rather than allowing them to be renewed. These strategies will require market participants to create new products designed to reference alternative RFRs. Each institution needs to play its part in demanding, designing, supplying and trading these products.
To help market participants understand and engage with the effort led by the global regulators and RFR working groups, the Trade Associations joined together, starting in 2017, to produce the IBOR Global Benchmark Transition Roadmap, the Global IBOR Market Survey and the IBOR Global Benchmark Transition Report.
Report
© ISDA - International Swaps and Derivatives Association
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article