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USD LIBOR needs upcoming consultations

Capital Markets Risk Intelligence #2

On 30th November, ICE Benchmark Administration (IBA) has announced that the end date for some USD LIBOR tenor will be suspended for 18months, leaving the new end date as 2023.

published December 25, 2020

BACKGROUND

IBA Announcement (Excerpt) (IBA:external link) 
  • Public consultation will soon be carried out on the following topics regarding LIBOR permanent cessation

- GBP, EUR, CHF(Swiss Franc), JPY: LIBOR permanent cessation will be announced on 31st December 2021 (All tenor)
・GBP – overnight, 1 week, 1, 2, 3, 6 and 12 months
・EUR – overnight, 1 week, 1, 2, 3, 6 and 12 months
・CHF (Swiss Franc) – spot next, 1 week, 1, 2, 3, 6 and 12 months
・JPY- spot next, 1 week, 1, 2, 3, 6 and 12 months

- Regarding USD, some tenor will be suspended until 30th June 2023.(Also will be discussed in Public consultation)
・1 week and 2 month USD LIBOR :Permanent cessation will be announced on 31st December 2021.
・Overnight and 1, 3, 6 and 12 month USD LIBOR :Permanent cessation will be announced on 30th June 2023.


FRB、OCC、FDICJoint Statement (Excerpt) (FRB Link a, FRB Link b:external link)
  • Some of US LIBOR’s cessation will be suspended until 30th June 2023, in order to give grace for the arrival date of Legacy LIBOR contract.
  • Financial Institutions are recommended to stop writing new USD LIBOR contracts by the end of 2021.
  • USD LIBOR contract after 2021 will be limited to the following purposes:

- Default processing auction procedures at the time of participants’ bankruptcy at intermediate clearing period.

- Market making for customer support regarding USD LIBOR contract concluded before January 2022.

- Risk mitigation contract and hedge against USD LIBOR Exposure of Bank and its client concluded before January 2022.

- Novation of USD LIBOR contract concluded before January 2022.


FCA Announcement (Excerpt,11th December 2020) (FCA :external link)
  • Due to Financial services Act which amends Benchmark regulation, FCA will be given the right to stop new contracts according to some of the LIBOR’s critical benchmark.
  • FCA does not plan to use this right before the end of 2021. After the end of 2021, for limitation of new contracts regarding USD, FCA will consider measures in the US as well as best cooperation. JPY will also depend on the future evaluation.

OUR COMPREHENSIVE LIBOR OFFERING

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The discussions and actions from various point of views through LIBOR Transtion process will be an opportnity to strengthen risk management capability to uphold businesses rather than ad-hoc event. Throughout the transition process, Deloitte Tohmatsu advises complrehensively from accounting, tax, legal, financial risk management points of views.

Prior Artcles related to LIBOR is here
For qustions to services provided by DeloitteTohmatsu (DTTL), please contact from here

 

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