Libor Transition Progresses, But Hurdles Remain for Legacy Loans

Source: American Banker (subscription may be required)

The banking industry’s transition away from the scandal-plagued Libor interest rate benchmark is largely proceeding smoothly, though many companies are still facing technical difficulties.

That’s according to a new survey from Bloomberg, which last month asked 130 lenders and corporate borrowers across the world about their progress in switching to alternative benchmarks. The London interbank offered rate — which used to be described as the world’s most important number — is being phased out globally after a rate-rigging scandal years ago.

Half of the survey’s respondents said they are still facing challenges in preparing their systems to transition older loans to non-Libor rates — a significant improvement from last summer, when 82% of respondents in a similar survey said they were facing operational hurdles.

The transition hit a major milestone at the start of this year with the implementation of new U.S. regulatory guidance. Under the guidance, U.S. financial instututions may no longer make new Libor loans, but legacy contracts may still reference Libor until the benchmark’s publication stops in mid-2023.

Now the industry is focusing on transitioning existing Libor-linked loans to new benchmarks. Those efforts got a boost last week from a new federal law that provides a roadmap for legacy contracts that are harder to switch.