Negotiating Interest Rate Provisions As Libor Demise Looms

By Charles Guerin (November 15, 2017, 1:14 PM EST) -- On July 27, 2017, the Loan Syndications and Trading Association issued a statement that Andrew Bailey, chief executive of the U.K.'s Financial Conduct Authority, announced the FCA would not compel banks to submit to Libor after 2021, foretelling the demise of Libor. The ICE Benchmark Administration, currently responsible for administering and publishing Libor, may publish daily Libor rates after that date, although the submitting banks could be fewer, impacting the use of the rate. As a potential alternative to U.K. Libor, in April of 2018 the Bank of England will take over the Sterling Overnight Index Average, or SONIA, which tracks the rates for overnight funding transactions in wholesale money markets. Rather than relying on a group of submitting banks, this process is intended to minimize the risk of rate manipulation that was the subject of the 2012 Libor scandal, which resulted in large fines imposed by U.S. and British regulators. European Money Markets use a similar rate called the Euro OverNight Index Average, or Eonia, and it may be proposed as a replacement for Euro Libor, which is also known as Euribor....

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