trending Market Intelligence /marketintelligence/en/news-insights/trending/5Zt1SHhqptMh6nWuQvdFgQ2 content
Log in to other products

Login to Market Intelligence Platform


Looking for more?

Contact Us

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List

Markets' continued use of Libor is financial stability risk, global monitor says

Street Talk - Ep. 64: Coronavirus jumpstarts digital adoption

Street Talk Podcast

Street Talk - Ep. 63: Deal talks continue amid bank M&A freeze, setting up for strong Q4

Street Talk Podcast

Street Talk - Ep. 62: 'Brutal' outlook for oil demand offers banks in oil patch no relief

Amid Q1 APAC Fintech Funding Slump, Payment Companies Drove Investments

Markets' continued use of Libor is financial stability risk, global monitor says

Global markets' continued reliance on Libor poses risks to financial stability, said the Financial Stability Board, as it called for "significant and sustained efforts" to move away from use of the benchmark interest rate by the end of 2021.

Libor, the London interbank offered rate, is based on the rate that banks lend to each other together with the expert judgement of bankers, and it underpins trillions of dollars of contracts from derivatives to credit cards and home loans. It was discredited after numerous banks were fined and bankers imprisoned for manipulating it.

While the actual transactions it is based on have declined dramatically, financial regulators worldwide want markets to discontinue using it and move towards risk-free rates instead. Risk-free rates are based on the actual cost of bank borrowing for overnight deposits.

End-2021 goal

The FSB, which is made up of regulators and central bankers from the world's biggest financial centers, wants the transition to happen by end-2021 but it is still unclear when exactly the rate will cease to be either published or regarded by regulators as properly representative.

"FSB members are committed to transitioning to more robust financial benchmarks," said Andrew Bailey and John Williams, co-chairs of the FSB Official Sector Steering Group.

"It is essential that both firms and national authorities around the world take steps now to ensure a smooth transition. As a matter of priority, authorities should discuss with financial institutions, and financial institutions with their clients, the transition process and agree on the steps needed."

The FSB said that, although there has been good progress away from Libor and other interbank offered rates and towards risk-free reference rates in many derivatives and securities markets, loan markets showed less signs of change.

"There may be $8 trillion in loans tied to U.S. dollar Libor that are originated outside of the U.S., and there are a number of other cross-border exposures to U.S. dollar Libor through derivatives, including cross-currency basis swaps, and other securities," it said.

Sofr, Sonia

However, the volume of overnight Treasury repo transactions underlying the preferred U.S. benchmark, Sofr, the secured overnight financing rate, now exceed $1 trillion on a daily basis, the FSB said.

To ease adoption of Sofr in consumer and other cash products, the Federal Reserve Bank of New York has stated that it plans to publish 30-, 90-, and 180-day compound averages of Sofr in the first half of 2020 as well as a "Sofr Index" that would allow market participants to calculate compounded Sofr rates over any period of time.

In the U.K., where regulators' preferred risk-free rate is Sonia, the sterling overnight index average, 33 different banks, sovereigns, and supranational agencies issued floating rate notes referencing compounded Sonia, with a total value of £35 billion, over the past year. Use of compounded Sonia has become the market standard for sterling securitizations, said the FSB, with more than £15 billion of publicly distributed issuance since April 2019.

The FSB said it will conduct a survey of exposures to Libor and supervisory measures being taken to address benchmark transition issues, and will deliver a report on the remaining challenges to benchmark transition to the G20 Finance Ministers and Central Bank Governors in July 2020.