The idea of the much-anticipated farewell to LIBOR, the reference rate synonymous with backroom agreements and misdeeds for over half a century, is now a reality. This iconic benchmark, which once supported an astronomical sum of assets worldwide, will soon vanish into the annals of financial history.
On an unassuming Friday morning in June, at 11:55 am U.K. time, 6:55 am in New York, the final fixing of USD LIBOR took place. This a rather humble conclusion for a rate that once significantly influenced the markets and affected people's lives worldwide.
This quiet end has not come without challenges for banks, corporates and consumers alike. Some of the challenges our customers and banks face worldwide are described below.
The full impact of the transition varies from one bank to another based on their size, business model, and exposure to LIBOR-linked products. Larger banks may have had a larger volume of contracts to deal with. In contrast, specialist banks serving specific sectors with highly structured finance will have more complex issues to attend to. Ultimately, all banks have faced a significant challenge and will again when the 3-month synthetic GBP LIBOR ends in 2024.
Not only has the demise of LIBOR triggered activity for banks, customers and corporations but for software vendors too. Financial software has had to be enhanced to support the new RFR rates and calculations. Siena Treasury, our Treasury Management Software, supports multiple methods of calculating RFR rates and some alternative interpretations of those methods.
While the discontinuation of LIBOR and its replacement has been widely covered in financial news and industry circles, the public is unlikely to be fully aware of these changes. And I think it's fair to say that outside the banking world, in the press, we will see headlines from time to time mistakenly referencing 'LIBOR' when referring to floating rate products. LIBOR became synonymous with any floating rates, in the same way, Hoover became synonymous with vacuum cleaners.
Despite the commotion, angst and ongoing effort to sunset LIBOR, it is important to acknowledge its significant role in shaping the global financial landscape. Its presence was felt in every corner of the market, touching retail investments, corporate assets, and even the wealth banking sector. Its influence was undeniable, even if its reputation became tarnished over time.
So, finally, LIBOR, while there is no cause for celebration at your departure, we bid you a fond farewell and request you remember to run the ‘Hoover’ around before you leave.