libor利率退出市场

LONDON, Jan. 1st, 2022 – LIBOR (London Interbank Offered Rate), the most important benchmark interest rate in the world, took a decisive step towards exiting the stage of history. This is one of the most significant reforms in the global financial market in decades, marking the era of diversification for global benchmark interest rates. According to the UK Financial Conduct Authority (FCA), even though 1-month, 3-month, and 6-month LIBOR will continue to be published until September 30th, 2024, they will be calculated using a synthetic methodology. This means that LIBOR, the pricing benchmark for the financial market for several decades, has officially retired.

1. Background of LIBOR

In the 1980s, as the global interest rate market began to develop and financial products such as interest rate swaps and currency derivatives became popular, there was an urgent need for a unified interest rate benchmark for transactions between various financial institutions and entities. Against this background, the British Bankers' Association launched LIBOR, an interest rate benchmark that reflects the average lending rates quoted by leading banks in London. LIBOR quickly became the standard reference rate for various financial instruments and loan products globally.

2. Reasons for LIBOR's Exit

One of the main reasons for the LIBOR's exit from the market is its susceptibility to manipulation. LIBOR quotes are not based on actual transactions and have a high subjectivity, allowing submitting banks to collude to manipulate the rates. Many submitting banks hold large positions in global interest rate derivative transactions, most of which are based on LIBOR. This creates a conflict of interest and raises concerns about the integrity of LIBOR as a benchmark.

3. The Reform of LIBOR

The process of reforming LIBOR began in 2013. With the support of the G20 and the Financial Stability Board, the International Organization of Securities Commissions (IOSCO) called for a market-oriented approach to gradually cease the use of LIBOR as a reference rate. At the same time, countries were urged to reform the process of formulating and regulating benchmark interest rates as soon as possible.

4. Impact of LIBOR's Exit

The impact of LIBOR's exit from the market is significant. As LIBOR has been the dominant reference rate for financial products and loan contracts, the transition to alternative benchmark rates requires adjustments and updates to a vast number of contracts and financial systems. This transition process poses challenges to financial institutions, as they need to ensure a smooth transition while mitigating the potential risks of contract disputes, pricing uncertainties, and market disruptions.