By the end of 2021, Libor will have all but disappeared. Helen Sanders looks at what treasurers should consider amid the phasing out of this widely used benchmark interest rate
For the past 40 years, the London Interbank Offered Rate (Libor) has been the touchstone for financial instruments, the world’s most widely used benchmark interest rate, reflecting the reference rate at which banks lend and borrow between themselves. By the end of 2021, Libor will disappear, if not completely then at least effectively. Libor’s retirement has repercussions that reach significantly beyond the interbank market. Libor is the basis of around US$200trn of loans and derivatives (10 times the size of US GDP1), from variable rate loans to interest rate swaps, and is referenced in both financial and commercial contracts globally.2 For corporate treasurers, the impact is extraordinary, from the legal validity of contracts to the cost of borrowing, hedge effectiveness of derivatives and the wider accounting implications of changes to the reference rate. Effectively, the end of Libor is one of the most significant events of most treasurers’ careers.
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