The London Inter-Bank Offered Rate (LIBOR) has been the most widely used interest rate benchmark in today’s financial system since the 1970s. The LIBOR coverage ranges from complex derivatives to residential mortgages, underlying over $370 trillion of transactions across the globe. Since 2008, significantly reduced volumes of interbank unsecured term borrowing are calling into question LIBOR’s ability to continue playing the central role of being the reference interest rate. In 2017, the regulatory body in the United Kingdom and LIBOR regulator – Financial Conduct Authority (FCA) – declared that banks will no longer be required to make LIBOR submissions after December 31 2021.
On Mar 5, 2021, the FCA has announced the dates that panel of banks that submit LIBOR settings will cease for all benchmark, after which representative LIBOR rates will no longer be available.
- In the case of all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings immediately after 31 December 2021; and
- In the case of the remaining US dollar settings immediately after 30 June 2023.
The FCA confirmed that all 35 LIBOR settings will either cease to be provided by any administrator or will no longer be representative as of the dates above. The FCA also stated that, subject to the establishment of new proposed powers under UK law, it would consult on the issue of requiring IBA to produce certain LIBOR tenors on a synthetic basis.
This is an important step towards the end of LIBOR, the Bank of England and FCA urge market participants to continue to take the necessary action to ensure they are prepared for transition.
International Swaps and Derivatives Association (ISDA) and Alternative Reference Rates Committee (ARRC) have formed working groups to actively explore alternative risk-free rates (“RFRs”, e.g. Secured Overnight Financing Rate is the RFR for USD LIBOR) and the calculation mechanisms for derivatives and cash instruments (loans, floating rate notes, etc.) respectively.
On March 5, 2021, ISDA has released the statement that FCA’s LIBOR announcement constitutes a cessation event under the IBOR Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks Protocol (“the Protocol”) for all 35 LIBOR settings. As a result, the fallback spread adjustment published by Bloomberg is fixed as on the date of the announcement (March 5, 2021) for all euro, sterling, Swiss franc, US dollar and yen LIBOR settings. The fallbacks will automatically occur for outstanding derivatives contracts which are covered by signing up for the Protocol beyond the following dates. In March 2021, New Development Bank adhered to ISDA 2020 IBOR Fallbacks Protocol and the General Conditions (Loans to Sovereigns or Loans with Sovereign Guarantees) with new reference rate fallback language was also approved by the Board of Directors.
- Dec 31, 2021: For outstanding derivatives referenced to all euro, sterling, Swiss franc and yen LIBOR settings.
- Jun 30, 2023: For outstanding derivatives referenced to all US dollar LIBOR settings.
The New Development Bank (NDB) has established the LIBOR Transition Steering Committee and LIBOR Transition Working Group to conduct comprehensive impact analysis of LIBOR Transition in different working streams, such as lending, funding, legal, information technology, client outreaching and accounting etc. In NDB is closely monitoring market development and proactively engaging with our borrowers for a smooth and successful transition from LIBOR. The Bank is also collaborating with other Multilateral Development Banks and major financial market players to track industry developments and will adopt best practices.
If you have any questions, please contact NDB at LIBOR-Transition@ndb.int .
- ICE Benchmark Administration to Consult On Its Intention to Cease the Publication of GBP, EUR, CHF and JPY LIBOR
- ICE Benchmark Administration to Consult on Its Intention to Cease the Publication of One Week and Two Month USD LIBOR Settings at End-December 2021, and the Remaining USD LIBOR Settings at End-June 2023
- CE Benchmark Administration Publishes Feedback Statement for the Consultation on Its Intention to Cease the Publication of LIBOR® Settings
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