Replacing the interest rate that underpins hundreds of trillions of dollars of financial contracts is a massive undertaking. Doing so during a global pandemic makes that challenge even more immense. Nevertheless, as the industry approaches the scheduled date for the cessation of LIBOR, capital markets have made significant strides in their preparations.
Analysing the transition away from LIBOR summons to mind Winston Churchill’s description of Russian intentions as World War II began. “It is a riddle wrapped in a mystery inside an enigma,” he famously remarked.
Of course, Churchill only had one country’s riddle to solve. What is generally termed the “LIBOR transition” is a series of transitions away from Inter-bank Offered Rates across all major global currencies in multiple jurisdictions. Within each transition, a broad range of instruments from cash loans to derivatives are impacted, and each transition poses its own unique challenges and issues.