While the retirement of the LIBOR interest-rate benchmark at the end of this month “stands to be one of the most seismic changes financial markets have ever seen”, Scott O’Malia of the International Swaps and Derivatives Association is confident with the safeguards in place.
“As the days and weeks tick by and the end-of-2021 deadline draws closer, the end of LIBOR is very close to becoming a reality, ISDA’s chief executive officer observes in an article published by International Banker.
“There will be challenges ahead, but the necessary framework and safeguards are now in place to allow market participants to switch both new and legacy transactions to alternative reference rates safely and efficiently.”
The article vividly explains the important role the crucial role that the London interbank offered rate, LIBOR, has played historically – and why it has then stopped doing so.
Parachute … check
For the safety of the transition, so called fallbacks are key, and these now seem to be safely in place.
“Fallbacks have been compared to seatbelts or parachutes—you hope you won’t need them, but they become critical for survival in the event of an accident. In much the same way, market participants have been encouraged to actively transition their businesses away from LIBOR before it ceases to exist. But in the event some legacy contracts continue to reference LIBOR when it is no longer published, the fallbacks will act as robust safety mechanisms.”