The Financial Stability Board (FSB) has reiterated its desire to see markets transit from Ibors to risk-free rates as a critical benchmark, in spite of the Covid-19 pandemic.
FSB says it has discussed the impact of the disease on benchmark transition and while its Official Sector Steering Group says it recognises that some aspects of firms’ transition plans are likely to be temporarily disrupted or delayed, it maintains its view that financial and non-financial sector firms across all jurisdictions should continue their efforts in making wider use of risk-free rates in order to reduce reliance on Ibors where appropriate and in particular to remove remaining dependencies on Libor by the end of 2021, adding “Libor transition is a G-20 priority.”
FSB says that Libor transition remains an essential task that will strengthen the global financial system. “Covid-19 has highlighted that the underlying markets Libor seeks to measure are no longer sufficiently active,” it states in a release. “Moreover, these markets are not the main markets that banks rely upon for funding. The increase in the most widely used Libor rates in March put upward pressure on the financing cost of those paying Libor-based rates. For those borrowers, this offset in large part the reductions in interest rates in those jurisdictions where central banks have lowered policy rates.”
FSB says it will report on remaining challenges to the reform process before the end of July and that its members, in collaboration with other standard-setting bodies and international institutions, will continue to monitor developments.