Beyond Libor special report 2018
Financial markets are sitting on a time bomb. In just over three years’ time, the rate that underpins $350 trillion of financial contracts could disappear. Whether by choice or by regulatory force, transition away from discredited Libor rates is something market participants can no longer ignore.
But while regulators are calling on banks to transition to risk-free rates (RFRs), they are also introducing higher capital charges for illiquid trades as part of the forthcoming Fundamental Review of the Trading Book. That means it would be costly for banks to transition to alternative RFRs before sufficient liquidity emerges.
The scale of the issue has hardly been played down. At $350 trillion, the world’s most important number is more than four times gross world product. But that may just be the tip of the iceberg when it comes to solving the problem.
A new system of interest rate benchmarks for all major currencies is emerging. These new benchmarks will replace interbank funding rates with risk-free rates (RFR). This article by LPA focuses on valuation challenges during the transitional period to new…
Dearth of liquid products and historic data threatens banks with capital hit under new market risk rules
Amid widespread expectation that Libor will soon be discontinued, questions are being asked around whether the transitioning towards risk-free rates will prove too onerous to achieve. Christopher Dias, principal, advisory, at KPMG, explores whether the…
Swaps could be judged non-modellable – and hit with capital add-on – as liquidity tails off in Libor
As pressure builds in the search for a new rate, some non-EU banks are looking at ways of keeping the existing one alive
The impending move from interbank offered rates to alternate reference rates will require important changes to many valuation and risk management processes and infrastructure. EY Financial Services’ Shankar Mukherjee, Michael Sheptin and John Boyle…
Unsecured fixing from ECB faces off against two repo-based rates, as 2020 benchmark deadline looms large
Liang Wu, vice-president of financial engineering and head of CrossAsset product management at Numerix, explores the transition to Libor alternative rates and the impact on curve construction practices
ARRC chair Sandra O’Connor also questions IBA transparency
All pricing, risk and valuation models will need to be changed to reflect the new rate
Using new risk-free rates alongside Libor equivalents gains industry support