One of the great totems of the markets around the planet is in the process of extinction. Libor, the benchmark that banks use to set interest rates on loans for 400 trillion dollars, about five times world GDP, already has an official disappearance date: December 31. The exposure of Spanish banks was two trillion euros at the end of 2020, according to the CNMV. Entities prepare for transition.
Regulators around the world, led by the Financial Stability Board, decided to end or tweak indices that had revealed their vulnerability in the Great Financial Crisis and significant perverse effects on the economy. In 2012 they were mortally wounded, but they have continued to be used in the absence of official substitutes and with the burden of the Covid in its implementation.
In the third conference of the CNMV on the status of the benchmark interest rate reform held yesterday, Víctor Rodríguez Quejido, general director of strategic policy and international affairs of the supervisor, recalled that, despite the fact that the Libor is not the index majority in the Spanish financial sector, its importance is systemic. All those affected are preparing for their disappearance. The references for the pound, the euro, the yen and the franc will be published for the last time on December 31, as announced on March 5 by the UK conduct supervisor, the FCA, with similar functions to the CNMV.
In 2022, the references to libor in dollars at one week and two months will also be extinguished, although the most representative – at 1, 3, 6 and 12 months – will survive until the end of June 2023. The substitute for libor from January It will be the sonia, which will be managed directly by the Bank of England and is based on real transactions, reflecting the average interest rates that banks pay to borrow sterling at different terms.
The EU has approved a mechanism that will allow the European Commission to designate a legal substitute rate that will be applicable to all contracts and financial instruments that do not contain a permanently applicable substitute index. Mónica López-Monís, responsible at Banco Santander for relations with supervisors and regulators, said yesterday in a presentation at the CNMV conference that “all market participants must have a comprehensive view of their exposure to librar and, if the exposures are considerable and complex, they must have transition plans ”.