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Financial institutions should migrate from LIBOR to alternative benchmarks

17.08.2020 18:33 / The Bank of Russia

In its Information Letter, the Bank of Russia recommends that financial market participants migrate from LIBOR (London Interbank Offered Rate) to other risk-free rates.

From the beginning of 2022, global banks in charge of LIBOR calculation will no longer be obliged to publish it. As a result, LIBOR may lose its representativeness and reliability, and in the end, cease to exist.

The Bank of Russia recommends that financial institutions should already start to minimise the number of effective agreements, and avoid entering into new ones, that are tied to LIBOR. This especially concerns agreements valid from 1 January 2022.

As a replacement for LIBOR, the following risk-free rates, recommended by foreign regulators, are suggested: SOFR (Secured Overnight Financing Rate), €STR (Euro short-term rate), SONIA (Sterling Overnight Index Average), TONAR (Tokyo Overnight Average Rate), and SARON (Swiss Average Rate Overnight).

The new risk-free rates will replace the traditional money market benchmarks as part of the global financial indicators reform. Financial indicators, which represent benchmark interest rates, exchange rates, stock and commodity prices, play a key role in the functioning of financial markets and the economy in general.

Financial markets megaregulator