LIBOR Transition

Planning the transition to nearly risk-free rates

 
NOTICE: NY Department of Financial Services Extends Deadline for Assurance of Preparedness for LIBOR Transition Plans to March 23 - Mazars can help

 

 

InterBank Offered Rates (IBORs) are used to determine the unsecured short-term funding cost in the interbank market for a combination of currencies, tenors and maturities. The reputation of IBORs took a hit in recent years with the LIBOR scandal, as well as with the post-crisis decline in liquidity in interbank unsecured deposit markets, which is the basis for the IBORs.


IBORs today underpin the global financial markets and trillions of dollars in financial products are linked to IBORs.


As confidence in the reliability and robustness of existing IBORs has been significantly undermined, G20 asked the Financial Stability Board (FSB) to undertake a fundamental review of major interest rate benchmarks. Dedicated working groups across the various FSB members’ jurisdictions were set up to select and develop nearly Risk- Free Rates (RFRs) in order to replace the existing benchmarks and alleviate systemic risks. RFRs are more robust than IBORs because RFRs are derived solely from transaction data. This change will have broad implications, mainly affecting derivative products but also loan agreements, bond agreements, leasing arrangements and many more existing transactions.

 
 

Last year before the LIBOR discontinuation. 1

     
 

Gross notional value of financial products $200tn linked to USD LIBOR; A number equal to 10 times the US GDP. 95% of those exposures are derivatives
products.2

     
 

The total fines applied to banks worldwide because of benchmark manipulation.

 

CHALLENGES FOR THE INDUSTRY

 

The transition from LIBOR remains a matter of great uncertainty and will depend on an individual bank’s facts and circumstances. RFRs are less homogeneous in their construction, because different regulators have decided to create replacements for their home markets. Transitioning to RFRs is a complex project that will cause organizational and technical impacts along the value chain of transactions. The change needs to be started as early as possible will present a number of challenges. Also, delaying the IBORs to RFRs transition is not a solution. Continuing to issue new IBOR-linked contracts which will mature in the coming years when RFR products have become a viable alternative may lead to damaging financial, customer and operational impacts.

 
HOW MAZARS HELPS

 

At Mazars, we have extensive experience working within diverse financial services players. We assist central banks, national regulators, major financial institutions and small and mid-size entities in dealing with the implementation of complex projects with multiple impacts on your business and international ramifications.

 

 

Mazars IBOR Tool

Our proprietary Mazars IBOR Tool measures and monitors IBOR risk in our clients’ portfolios, assisting them to develop structured and optimized strategy- we:

 

 

 
  • Screen Contracts to capture any relevant information to access the risks you are facing
  • Perform Exposure Analysis (per asset class, currency and maturity)
  • Perform Sensitivity Analysis on a change in benchmark rate and impact assessment
  • Monitor New RFRs’ Liquidity
Charles Abraham | Partner
  516.620.8526
  Charles.Abraham@MazarsUSA.com
  Detailed profile

 

Laurence Karagulian | Director
  646.315.6186
  Laurence.Karagulian@MazarsUSA.com

 



Request for Assurance of Preparedness
for LIBOR Transition - 12.23.19




LIBOR Transition Extension