November 14, 2018

FSB published a progress report on the implementation of its recommendations to reform major interest rate benchmarks. The report sets out the progress made on the development of overnight nearly risk-free rates (RFRs) and markets based on these rates; it also assesses progress on further reforms to interbank offered rates (IBORs). FSB will publish the next progress report in late 2019.

The progress report considers three key areas:

  • IBORs. Although the London Interbank Offered Rate (LIBOR) has been strengthened, authorities have warned that publication of LIBOR may cease once official sector support for the benchmark is withdrawn at the end of 2021. Work has continued among the other major IBORs (EURIBOR and TIBOR) to strengthen the existing methodologies to make them more grounded in actual transactions as well as to strengthen regulatory frameworks and supervision. 

  • Alternative reference rates. In the markets facing the disappearance of IBORs, notably markets currently reliant on LIBOR, there needs to be an orderly transition to new reference rates that are sufficiently robust for such extensive use. Since the 2017 progress report, a great deal of progress has been made to identify RFRs and other alternative reference rates in the currency areas that are currently reliant on LIBOR benchmarks. Progress has also been made to plan for, and in some markets, begin to execute the transition to those RFRs.

  • Enhancing contractual robustness. Significant work continues on the part of FSB member authorities, national working groups, ISDA, and other trade associations on the important task of strengthening contractual robustness to the risk of discontinuation of major interest-rate benchmarks. This issue goes beyond derivatives markets and applies to many types of cash products, including syndicated loans, bonds, and mortgages.

FSB started its work on the reforms to IBORs, in response to the cases of attempted manipulation and to the decline in liquidity in key interbank unsecured funding markets. In 2014, FSB set out recommendations to reform major interest rate benchmarks, such as key IBORs, and has been monitoring progress on the implementation since then.

 

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Keywords: International, Banking, RFR, LIBOR, Reference Rates, Interest Rate Benchmarks, IBOR, FSB

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