LIBOR -- The Heat is On
Updated: Aug 7, 2020
The Bank of England remains actively engaged in pressuring market participants to move forward quickly with the LIBOR transition. As noted during our webinar last week, decreased liquidity in LIBOR-priced financial products raise liquidity and monetary policy issues that will only become more pronounced as the parallel Brexit process nears completion at year-end 2020.
Today's Financial Policy Committee (FPC) statement was overshadowed by the monetary policy decision, but it makes clear that policymakers in London urgently seek an accelerated implementation of the LIBOR transition. In particular, policymakers are making it clear that private market participants should not wait for guidance, rules (and term rates?) before replacing LIBOR with market-based benchmarks:
The challenges for risk managers and strategists everywhere have just multiplied exponentially. Policymakers in London are effectively saying that it matters little whether (or not) the risks regarding the new benchmarks can be priced appropriately. The transition needs to occur regardless.
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