The FCA has announced that the LIBOR rate will be scrapped by 2021, as it is a “less useful benchmark than it used to be”.
Twenty panel banks submit contributions to the benchmark, which measures how much they’d be able to borrow across currencies and time periods, but the FCA believes the underlying market that LIBOR seeks to measure – the market for unsecured wholesale term lending to banks – “is no longer sufficiently active”.
LIBOR is also widely used in loans to non-financial corporates, and, in some countries, even in retail financial markets to calculate the interest that a consumer pays on a mortgage.
In April, the Risk Free Rate Working Group in the UK selected reformed SONIA as its proposed alternative benchmark.
Earlier this month the Bank of England convened a round table to discuss plans for transitioning to the chosen near risk free interest rate benchmark for sterling.