The London Interbank Offered Rate (LIBOR) is the reference interest rate for tens of millions of contracts worth more than USD 240 trillion, ranging from complex derivatives to residential mortgages. LIBOR is also hardwired into all manner of financial activity, such as risk, valuation, performance modelling and commercial contracts. It has been called the “world’s most important number”.

However, significantly reduced volumes of interbank unsecured term borrowing, which is the basis for LIBOR, is calling into question its ability to continue playing this central role.

Working groups convened by regulators in the most used LIBOR currencies have already converged on alternative reference rates. In addition, the UK’s Financial Conduct Authority (FCA) last year announced that after 2021 it would no longer persuade or compel panel banks to submit the rates required to calculate LIBOR.

Contributors: Oliver Wyman
Categories: Whitepaper
SRC Type: Benchmarking and Analysis, Category Management, Procurement Operations, Sourcing Management