Libor Risk – Quarterly report Q1 2020

Bankers may be looking back with fondness to more normal times, when the biggest problem they faced was how to prise trillions of financial contracts away from Libor. Now, when they’re fighting a full-blown financial meltdown from makeshift offices at their own kitchen tables, Libor transition might be starting to look like run-of-the-mill stuff.

Regulators want to detach the market from Libor before the end of 2021, when panel banks will be free to stop supporting the rate and it could vanish. An array of deadlines for re-hitching segments of the market to overnight risk-free rates were already a tall order. Since coronavirus panic sent stocks, bonds and oil prices tumbling – and tested business continuity plans in all manner of new ways – the timetable is beginning to look impossible. 

Regulators may have to accept Libor transition will be slower than they hoped. But the final framework may yet be more robust as a result. Knowing how rates perform in times of stress will be crucial to the success of benchmarks intended for real economy use, and there’s been no bigger stress test for rates markets than that seen in March.

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