WASHINGTON–The Financial Stability Board (FSB) has released a “global transition roadmap” designed to assist in the move away from the soon-to-be-defunct benchmark interest rate, the London Interbank Offered Rate (LIBOR).
According to the FSB, which is made up of central bankers and national regulators, the roadmap sets out a timetable for a smooth transition away from LIBOR by year-end 2021.
“Use of LIBOR in the five LIBOR currencies (the U.S. dollar, Great Britain pound, European Union euro, Japan yen and the Swiss Confederation franc) is widespread internationally,” the FSB said in a release. “Transition away from LIBOR by end-2021 requires significant commitment and sustained effort from both financial and non-financial institutions across many LIBOR and non-LIBOR jurisdictions.”
According to the FSB, its new roadmap is intended to inform those with exposure to LIBOR benchmarks of steps they should take now through year-end 2021 to successfully mitigate these risks.
“These are considered prudent steps to take to ensure an orderly transition by end-2021 and are intended to supplement existing timelines/milestones from industry working groups and regulators,” the FSB said in its statement.
Some clearinghouses have already begun making the switch from LIBOR to alternative rates, including the Secured Overnight Financing Rate (SOFR, which has the backing of the Fed).
Elements of Roadmap
The FSB said steps in its roadmap include:
- By the end of 2020, firms should be in a position to offer non-LIBOR linked loans to their customers
- By mid-2021, firms should have established formalized plans to amend legacy contracts where possible and implemented the necessary system and process changes to enable transition to robust alternative rates
- By end-2021, firms should be prepared for LIBOR to cease