On November 30th, LIBOR administrator, ICE Benchmark Administration (“IBA”), announced plans to ease worries surrounding LIBOR cessation with a brief extension to June 30, 2023. IBA’s intention is to cease publication (i) of 1-week and 2-month USD LIBOR at the end of 2021 and (ii) subject to compliance with applicable regulations, including as to representativeness, it does not intend to cease publication of the remaining USD LIBOR tenors until June 30, 2023. This IBA announcement followed an earlier IBA announcement on November 18, 2020, that all GBP, EUR, JPY, and CHF IBOR tenors would cease publication after December 31, 2021.
The likely extension of rate settings beyond that date with respect only to specified USD LIBOR settings demonstrates the profound impediments confronting market participants in their efforts to transition from USD LIBOR. Integration of a replacement rate such as Secured Overnight Financing Rate (SOFR) might be delayed past December 31, 2021. Despite the extra time, regulators and industry leaders still urge market participants to implement changes as quickly as possible. Specifically:
- Banks are encouraged to stop entering into new USD LIBOR contracts “as soon as practicable,” and by no later than December 31, 2021;
- Entry into such contracts after December 31, 2021, would create safety and soundness risks for banks;
- The USD LIBOR June 30, 2023, cessation date will allow more time for existing legacy USD LIBOR contracts to mature; and
- Banks should use this extra time to continue to prepare for the transition away from LIBOR.
We will continue to monitor this and report in the Rimon IM Report.